Article ID Journal Published Year Pages File Type
9554056 Journal of Banking & Finance 2005 20 Pages PDF
Abstract
We provide a model for a futures clearinghouse to use for setting optimal levels of clearing margin, capital and price limits, which minimizes the costs to clearing firms and simultaneously protects the clearinghouse from default by clearing firms. We show how to estimate the capital requirement, which supports the clearinghouse's residual default risk that is not covered by the clearing margin. We apply our model to the Winnipeg Commodity Exchange and demonstrate that price limits reduce the sum of optimal clearing margin and capital to a level that is substantially lower than that required in the absence of price limits.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
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