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Margin in Derivatives Trading - Product Image

Margin in Derivatives Trading

  • ID: 4804082
  • Book
  • July 2019
  • Risk Books
1 of 3

Many of the challenges that banks face due to tighter margin requirements are still fresh and, in many cases, without solid industry consensus to guide their resolution. Yet the new margin rules are already in place and, in order to effectively trade in today's markets, financial institutions must quickly develop a keen understanding of the implications of, and techniques for, trading with large margin requirements. This is, therefore, a serendipitous time to organise the many strands of margin-related challenges into a coherent framework, and, more importantly, to present the thinking and research on these problems by a collection of leading academics, practitioners and regulators. 

Margin in Derivatives Trading aims to do just this, and should be of benefit to practitioners, academics and regulators alike.

The book has been organised into several focus areas, progressing from the fundamentals of margin postings and the associated regulation, via valuation adjustments (XVA) and exposure calculation techniques, to more advanced topics. The book is divided into five sections:

1. Foundation;

2. Regulation;

3. XVA and forward initial margin;

4. Exposure modelling;

5. Optimisation, procyclicality and systemic risk.

Part I describes the basic mechanics of margin posting, as laid out in the typical legal documents relevant to different types of trading.

Part II is dedicated to regulatory aspects of margin, with a special focus on the new rules for bilateral OTC trading between financial companies.

Part III of the book is dedicated to the computation of valuation metrics for the credit and funding costs of margin.

Part IV of the book focuses on modelling credit exposure in the presence of margin.

Part V addresses a number of issues that can loosely be thought of as the unintended consequences of mandatory central clearing and the new margin requirements for bilateral OTC trading.

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PART I Foundation

1. Variation and Initial Margin in ISDA Credit Support Annex

Gordon Lee, Piero Del Boca, Emma Jones, Sope Taiwo

UBS Investment Bank

2. Variation and Initial Margin Required by Central Counterparty and Clearing Houses

John Fennell, Yuting Wei

The Options Clearing Corporation

PART II Regulation

3. Margin Requirements for Over-the-Counter Derivatives: A supervisory Perspective 

John Feid, David Lynch

Federal Reserve Board

4. The Emergence and Concepts of the SIMM Methodology

 Martin Dahlgren, Tomo Kodama

Bank of America Merrill Lynch

5. The ISDA Standard Initial Margin Model-Backtesting Framework

Eduardo Epperlein, James McEwen, Wahb Ettoumi


6. The Impact of Margin on Regulatory Capital

Michael Pykhtin

 Federal Reserve Board


7. XVA for Margined Trading Postions

Leif Andersen

 Bank of America Merrill Lynch

8. Modelling Forward Initial Margin Requirements for Bilateral Trading

Justin Chan; Shengyao Zhu; Boris Tourtzevitch

 FIS Global; Nordea; FIS Global

9. Forward Valutaion of Inital Margin in Exposure and Funding Calculations

Martin Dahlgren

 Bank of America Merrill Lynch

10. Margin Value Adjustments for CCPS With Q-Stimulated Inital Margin

Roberto Daluiso, Giorgia Facchinetti, Massimo Morini

 Banca IMI


11. Bilateral Exposure in the Presence of Margin

Leif Andersen; Michael Pyktin; Alexander Sokol

 Bank of America Merrill Lynch, Federal Reserve Board; CompatibL

12. Central Counterparty Risk

Matthias Arnsdorf

 JP Morgan Chase

13. Robust Computation of XVA Metrics for Central Counterparty Clearing Houses

Leif Andersen, Andrew Dickinson

 Bank of America Merrill Lynch

Part V

14. Efiicient Initial Margin Optimisation

Nishchal Devanur, Andrea Vidozzi

 Bank of America Merrill Lynch

15. Procycality in Sensitivity-Based Margin Requirements

Paul Glasserman; Qi Wu

 Colombia University Business School; Chinese Univeristy of Hong Kong

16. Systematic Risks in Central Counterparty Clearing House Networks

Alexander Lipton


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Leif B. G. Andersen

Global Head of The Quantitative Strategies Group, Bank of America Merrill Lynch

Leif B. G. Andersen is the Global Head of The Quantitative Strategies Group at Bank of America Merrill Lynch, and is an adjunct professor at NYU’s Courant Institute of Mathematical Sciences and at CMU’s Tepper School of Business.  He holds MSc's in Electrical and Mechanical Engineering from the Technical University of Denmark, an MBA from University of California at Berkeley, and a PhD in Finance from Aarhus Business School.  He was the co-recipient of Risk Magazine’s 2001 and 2018 Quant of the Year Awards, and has worked for more than 25 years as a quantitative researcher in the global markets area. He has authored influential research papers and books in all areas of quantitative finance, including the 3-volume textbook Interest rate Modeling (co-authored with Vladimir Piterbarg). He is an Associate Editor of the Journal of Computational Finance.

Michael Pykhtin 

Michael Pykhtin is a manager in the Quantitative Risk section at the U.S. Federal Reserve Board. Prior to joining the Board in 2009 as a senior economist, he had a successful nine-year career as a quantitative researcher at Bank of America and KeyCorp. Michael has edited “Counterparty Risk Management” and “Counterparty Credit Risk Modelling”; he is also a contributing author to several recent edited collections. Michael has published extensively in the leading industry journals; he has been an Associate Editor of the Journal of Credit Risk since 2007. Michael is a two-time recipient of Risk Magazine's Quant of the Year award (for 2014 and 2018). Michael holds a Ph.D. degree in Physics from the University of Pennsylvania and an M.S. degree in Physics and Applied Mathematics from Moscow Institute of Physics and Technology.

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