@article {Bystr{\"o}m37, author = {Hans N.E Bystr{\"o}m}, title = {Margin Setting in Credit Derivatives Clearing Houses}, volume = {19}, number = {4}, pages = {37--43}, year = {2010}, doi = {10.3905/JFI.2010.19.4.037}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The possible benefits of introducing central counterparties, or clearing houses, in the credit derivatives market is currently intensively debated among bankers and policymakers. The exact outcome of this discussion is not yet clear, but regardless of how any eventual clearing is organized, the actual clearing house needs to be properly capitalized and needs to maintain accurate margin (collateral) levels. In this article, the authors discuss how extreme value theory can be used to compute margin levels for such a clearing house. They present some evidence of credit derivatives price change distributions being significantly non-normal, and margins based on extreme value theory are found to be more accurate than those based on normal or historical distributions, particularly at more conservative margin levels.TOPICS: Exchanges/markets/clearinghouses, credit default swaps, statistical methods, developed markets [Europe]}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/19/4/37}, eprint = {https://jfi.pm-research.com/content/19/4/37.full.pdf}, journal = {The Journal of Fixed Income} }