Central Clearing Valuation Adjustment

Abstract : We develop an XVA analysis of centrally cleared trading, parallel to the one that has been developed in the last years for bilateral transactions. A dynamic framework incorporates the sequence of the cash-flows involved in the waterfall of resources of the CCP. The total cost of the clearance framework for a member of the clearinghouse, called CCVA for central clearing valuation adjustment, is decomposed into a nonstandard CVA corresponding to the cost of the losses on the default fund in case of defaults of other members, an FVA corresponding to the cost of funding its position (including all the margins) and a KVA corresponding to the cost of regulatory capital (and for completeness we also incorporate a DVA term). This framework can be used by a clearinghouse to assess the right balance between initial margins and default fund in order to minimize the CCVA, hence optimize its costs for a given level of resilience. A clearinghouse can also use it to analyze the benefit for a dealer to trade centrally as a member, rather than on a bilateral basis, or to help clearing members risk manage their CCVA. The potential netting benefit of central clearing and the impact of the credit risk of the members are illustrated numerically.
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https://hal.archives-ouvertes.fr/hal-01169169
Contributor : Stéphane Crépey <>
Submitted on : Monday, June 29, 2015 - 1:54:20 PM
Last modification on : Thursday, January 11, 2018 - 6:25:42 AM

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  • HAL Id : hal-01169169, version 1
  • ARXIV : 1506.08595

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Stéphane Crépey, Armenti Yannick. Central Clearing Valuation Adjustment. 2015. ⟨hal-01169169v1⟩

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