Central European Business Review 2016, 5(4):47-60 | DOI: 10.18267/j.cebr.166

Stress Indicator for Clearing Houses

Edina Berlinger1, Barbara Dömötör2, Ferenc Illés3, Kata Váradi4
1 Dr. Edina Berlinger, Associate Professor, Corvinus University of Budapest, Fővám tér 8, H-1165, Budapest, Hungary, edina.berlinger@uni-corvinus.hu
2 Dr. Barbara Dömötör, Adjunct Professor, Corvinus University of Budapest, Fővám tér 8, H-1165, Budapest, Hungary, barbara.dömötör@uni-corvinus.hu
3 Ferenc Illés, PhD Student, Corvinus University of Budapest, Fővám tér 8, H-1165, Budapest, Hungary, illesf16@gmail.com
4 Dr. Kata Váradi, Associate Professor, Corvinus University of Budapest, Fővám tér 8, H-1165, Budapest, Hungary, kata.varadi@uni-corvinus.hu

As a regulatory answer to the crisis, financial instruments are increasingly forced to be cleared centrally even in the OTC markets; therefore, risk management of central clearinghouses has become a central issue. A key term of the regulation is a stress event; however, it is not specified in the legislation what should be meant under stress in the case of a clearinghouse. To find an objective stress indicator, we built up a micro-simulation model of a hypothetical clearinghouse operating on the US equity market between 2007 and 2015. Based on this, we developed a logit regression model to specify an appropriate stress indicator and we showed that our "tailor-made" stress index calibrated to the position of the clearinghouse performs significantly better than the usual market proxies for financial stress.

Keywords: Financial stability; central counterparty; EMIR; agent-based simulation; logit regression; Gini-coefficient
JEL classification: G01, G23, G32

Received: October 10, 2016; Revised: December 13, 2016; Published: December 31, 2016  Show citation

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Berlinger, E., Dömötör, B., Illés, F., & Váradi, K. (2016). Stress Indicator for Clearing Houses. Central European Business Review, 5(4), 47-60. doi: 10.18267/j.cebr.166
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