{"id":12720,"date":"2016-12-07T06:10:07","date_gmt":"2016-12-07T11:10:07","guid":{"rendered":"http:\/\/wavechronicle.com\/wave\/?p=12720"},"modified":"2016-12-03T20:43:47","modified_gmt":"2016-12-04T01:43:47","slug":"contagion-in-the-cds-market","status":"publish","type":"post","link":"http:\/\/wavechronicle.com\/wave\/?p=12720","title":{"rendered":"Contagion In The CDS Market"},"content":{"rendered":"<h2 style=\"text-align: center;\"><a href=\"https:\/\/financialresearch.gov\/working-papers\/\" target=\"_blank\">Working Papers &#8211; Office of Financial Research<\/a><\/h2>\n<h3>Contagion in the CDS Market<\/h3>\n<p>This paper assesses the risk of contagion in the credit default swap (CDS) market. This risk emerges through the inability of CDS counterparties to make payments during systemic stress. The authors find that the central counterparty contributes significantly less to network contagion than do several peripheral firms that are large net sellers of CDS protection.<\/p>\n<h4><strong>Abstract:<\/strong><\/h4>\n<p>This paper analyzes counterparty exposures in the credit default swaps market and examines the impact of severe credit shocks on the demand for variation margin, which are the payments that counterparties make to o\ufb00set price changes. We employ the Federal Reserve\u2019s Comprehensive Capital Analysis and Review (CCAR) shocks and estimate their impact on the value of CDS contracts and the variation margin owed. Large and sudden demands for variation margin may exceed a \ufb01rm\u2019s ability to pay, leading some \ufb01rms to delay or forego payments. These shortfalls can become ampli\ufb01ed through the network of exposures. Of particular importance in cleared markets is the potential impact on the central counterparty clearing house. Although a central node according to conventional measures of network centrality, the CCP contributes less to contagion than do several peripheral \ufb01rms that are large net sellers of CDS protection. During a credit shock these \ufb01rms can su\ufb00er large shortfalls that lead to further shortfalls for their counterparties, amplifying the initial shock.<\/p>\n<p><a href=\"http:\/\/wavechronicle.com\/wave\/wp-content\/uploads\/2016\/12\/OFRwp-2016-12_Contagion-in-the-CDS-Market.pdf\">Full PDF Report Click Here<\/a><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Working Papers &#8211; Office of Financial Research Contagion in the CDS Market This paper assesses the risk of contagion in the credit default swap (CDS) market. This risk emerges through the inability of CDS counterparties to make payments during systemic stress. The authors find that the central counterparty contributes significantly less to network contagion than do several peripheral firms that are large net sellers of CDS protection. Abstract: This paper analyzes counterparty exposures in the credit default swaps market and examines the impact of severe credit shocks on the demand for variation margin, which are the payments that counterparties make to o\ufb00set price changes. We employ the Federal Reserve\u2019s Comprehensive Capital Analysis and Review (CCAR) shocks and estimate their impact on the value of CDS contracts and the variation margin owed. Large and sudden demands for variation margin may exceed a \ufb01rm\u2019s ability to pay, leading some \ufb01rms to delay or forego payments. These shortfalls can become ampli\ufb01ed through the network of exposures. Of particular importance in cleared markets is the potential impact on the central counterparty clearing house. Although a central node according to conventional measures of network centrality, the CCP contributes less to contagion than do several peripheral \ufb01rms that are large net sellers of CDS protection. During a credit shock these \ufb01rms can su\ufb00er large shortfalls that lead to further shortfalls for their counterparties, amplifying the initial shock. Full PDF Report Click Here &nbsp; &nbsp;<\/p>\n","protected":false},"author":3,"featured_media":12666,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[743],"tags":[29,1088],"class_list":["post-12720","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economy","tag-economy","tag-government"],"acf":[],"_links":{"self":[{"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=\/wp\/v2\/posts\/12720","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12720"}],"version-history":[{"count":1,"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=\/wp\/v2\/posts\/12720\/revisions"}],"predecessor-version":[{"id":12722,"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=\/wp\/v2\/posts\/12720\/revisions\/12722"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=\/wp\/v2\/media\/12666"}],"wp:attachment":[{"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12720"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12720"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/wavechronicle.com\/wave\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12720"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}