One bad apple: default risk at CCPs

One clearing member's disproportionately large position increases the credit risk for all CCP members

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Leif Andersen and Andrew Dickinson present a model to quantify the credit risks associated with membership of a central clearing counterparty (CCP) that allows its members to clear outsized house positions. In a result that has significant implications for CCP credit exposure management, they conclude that the risks contributed by a single highly levered member may dominate those of all the other members combined

The significant mutualised default loss at the

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