Craig Pirrong, professor of finance at the University of Houston and author of the Streetwise Professor blog, takes a look at how academic CCP models don't match up to the reality.
Pre-Crisis, there was very little academic writing on
clearing. Post-Crisis, with questions about the role of
derivatives in creating systemic risk, and the mandating of
clearing of derivatives as a means of mitigating this problem,
this is changing. ...
This is a
good thing, but unfortunately, this burgeoning academic
literature is at risk of irrelevance, and worse, of being
misleading, because the theoretical models of clearing are
nothing like clearing as it actually is. These models tend to
focus on the mutualisation of risk within CCPs. That's
important, but as I'll discuss in more detail below,
mutualisation is not the most important feature of CCPs.
talk about a couple of papers in detail, Adam Zawadowski's
Entangled Financial Systems in the most recent RFS, and Clearing, Counterparty Risk, and Aggregate
Risk by Biais, Heider, and Hoerova.
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