Systemic Risk in Derivatives Markets: A Pilot Study Using CDS Data

Ali, Robleh; Vause, Nicholas; Žikeš, Filip

doi:10.2139/ssrn.2809667

Cited by 13 publications

(12 citation statements)

References 19 publications

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“…The DTCC data contain all CDS transactions written on UK reference entities, which are corporations whose shares have their primary listing on the UK stock exchange. In two recent descriptive papers, Benos, Wetherilt, and Zikes (2013) and Ali, Vause, and Zikes (2016) study the structure of this market using similar data and sample period. Instead of replicating their work, we briefly summarize their main findings here.…”

Section: Methodsmentioning

confidence: 99%

“…The UK CDS network has a core-periphery structure, where the G16 dealers form the core and the non-dealers, such as banks, asset managers, hedge funds and insurers populate the periphery (Ali, Vause, and Zikes, 2016). The total number of counterparties in the network increased from 300 to 350 and the overall connectivity of the network dropped roughly from 3% to 2% between 2009 and 2011.…”

Section: The Uk Single-name Cds Marketmentioning

confidence: 99%

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Identifying Contagion in a Banking Network

Morrison

Vasios²,

Wilson

et al. 2017

FEDS

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We present the first micro-level evidence of the transmission of shocks through financial networks. Using the network of credit default swap (CDS) transactions between banks, we identify bank CDS returns attributable to counterparty losses. A bank's own CDS spread increases whenever counterparties from whom it has purchased default protection themselves experience losses. We find no such effect from losses of non-counterparties, nor from counterparties to whom the bank has sold protection. The effect on bank CDS returns through this counterparty loss channel is large relative to the direct effect on a bank's CDS returns from its own trading losses.

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Section: Methodsmentioning

confidence: 99%

Section: The Uk Single-name Cds Marketmentioning

confidence: 99%

Identifying Contagion in a Banking Network

Morrison

Vasios²,

Wilson

et al. 2017

FEDS

Self Cite

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show abstract

“…Their work differs from the present paper in the methodologies used to study contagion, and in the focus on the European rather than the U.S. market. 2 More recently, Ali et al (2016) examine the network structure of the CDS market in the United Kingdom. These authors argue, as do Glasserman and Young (2016), that the systemic importance of market participants is not fully captured by conventional measures of centrality.…”

Section: Related Literaturementioning

confidence: 99%

Contagion in Derivatives Markets

2020

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A major credit shock can induce large intraday variation margin payments between counterparties in derivatives markets, which may force some participants to default on their payments. These payment shortfalls become amplified as they cascade through the network of exposures. Using detailed Depository Trust & Clearing Corporation data, we model the full network of exposures, shock-induced payments, initial margin collected, and liquidity buffers for about 900 firms operating in the U.S. credit default swaps market. We estimate the total amount of contagion, the marginal contribution of each firm to contagion, and the number of defaulting firms for a systemic shock to credit spreads. A novel feature of the model is that it allows for a range of behavioral responses to balance sheet stress, including delayed or partial payments. The model provides a framework for analyzing the relative effectiveness of different policy options, such as increasing margin requirements or mandating greater liquidity reserves. This paper was accepted by Karl Diether, finance.

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“…Further work on the empirical estimation of systemic risk includes the work of Billio et al (2012) and Ali et al (2016); an excellent survey on systemic risk measurement is given in Bisias et al (2012).…”

Section: Relation To the Literature On Systemic Riskmentioning

confidence: 99%

Diversification and Systemic Risk: A Financial Network Perspective

Frey

Hledik

2018

Risks

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In this paper, we study the implications of diversification in the asset portfolios of banks for financial stability and systemic risk. Adding to the existing literature, we analyse this issue in a network model of the interbank market. We carry out a simulation study that determines the probability of a systemic crisis in the banking network as a function of both the level of diversification, and the connectivity and structure of the financial network. In contrast to earlier studies we find that diversification at the level of individual banks may be beneficial for financial stability even if it does lead to a higher asset return correlation across banks.

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Systemic Risk in Derivatives Markets: A Pilot Study Using CDS Data

Cited by 13 publications

References 19 publications

Identifying Contagion in a Banking Network

Identifying Contagion in a Banking Network

Contagion in Derivatives Markets

Diversification and Systemic Risk: A Financial Network Perspective

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