Amsterdam PhD Finance Seminars

Wenqian Huang (VU University Amsterdam)
Wednesday, 20 May 2015

Regulators ask exchanges to have a “kill switch” to stop trading during emergencies. Central clearing helps identify when traders’ net positions expand at abnormal speed. This combined with additional volatility and higher correlations could threaten the stability of the trading system. Traders might develop large losses quickly, and potentially default on such liabilities. We propose that such aggregate risk is best monitored at the level of the central clearer. A tail risk measure is used for real-time monitoring. Changes in tail risk are decomposed into various contributing factors. We implement the approach on clearing data to identify “out of control” risk, large risk changes, and what caused these changes.

Discussant: Andries van Vlodrop (VU University Amsterdam)