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May 28, 2020

How Does CCP Skin In The Game Affect Risk Management?

The BIS have conducated a rigorous study using public metrics to look for a relationship between the amount of CCP capital at risk in the default waterfall, and the behaviour of CCP risk models. I won't spoil the surprise on the outcome, but this appears to be the first quantitative study into the possibility that if a CCP is likely to lose money, they operate more conservative risk models.

The paper covers:

  • The default waterfall
  • CCP profitability
  • The hypotheses to be tested
  • Public data, featuring ClarusFT
  • Model risk management
  • The role of 'skin in the game'
  • The value of a franchise versus risk
  • The conclusion

More information and the PDF plus the outcome

  • https://www.bis.org/publ/work866.htm

Photo by Mehndi Training Center on Unsplash


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