Systemic risk and optimal fee for central clearing counterparty under partial netting

Zhenyu Cui, Qi Feng, Ruimeng Hu, Bin Zou

Research output: Contribution to journalArticlepeer-review

Abstract

We propose a novel central clearing counterparty (CCP) design for a financial network, in which the participation of banks in the CCP depends on the proportional clearing fee. We obtain the optimal fee that maximizes the CCP's net worth. We show that partial participation of banks in the CCP at the optimal fee rate reduces banks’ aggregate shortfall and also reduces the overall systemic risk. We also carry out numerical examples to verify the theoretical results.

Original languageEnglish
Pages (from-to)306-311
Number of pages6
JournalOperations Research Letters
Volume46
Issue number3
DOIs
StatePublished - May 2018

ASJC Scopus subject areas

  • Software
  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Applied Mathematics

Keywords

  • Clearing fee
  • Financial network
  • Optimization
  • Shortfall
  • Systemic risk

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