New Paper CCPs and Network Stability in OTC Derivatives Markets

Sheri Markose and Ali Rais Shaghaghi have co-authored a paper with Mark Manning, Alexanda Heath, Gerard Kelly of the Rserve Bank of Australia (July 2105) Paper

 

Abstract

Among the reforms to OTC derivative markets since the global financial crisis is a commitment to collateralize counterparty exposures and to clear standardized contracts via central counterparties (CCPs). The reforms aim to reduce interconnectedness and improve counterparty risk management in these important markets. At the same time, however, the reforms necessarily concentrate risk in one or a few nodes in the financial network and also increase institutions’ demand for high-quality assets to meet collateral requirements. This paper looks more closely at the implications of increased CCP clearing for both the topology and stability of the financial network. Building on Heath, Kelly and Manning (2013) and Markose (2012), the analysis supports the view that the concentration of risk in CCPs could generate instability if not appropriately managed. Nevertheless, maintaining CCP prefunded financial resources in accordance with international standards and dispersing any unfunded losses widely through the system can limit the potential for a CCP to transmit stress even in very extreme market conditions. The analysis uses the Bank for International Settlements Macroeconomic Assessment Group on Derivatives (MAGD) data set on the derivatives positions of the 41 largest bank participants in global OTC derivative markets in 2012.


See Ali's slides used at the Cambridge Centre for Risk Studies Wednesday, 9 September 2015 FINANCIAL RISK AND NETWORK THEORY CONFERENCE

 

Ali Rais Shaghagi : New Job Summer 2015

Dr. Ali Rais Shaghghi is now a Risk Researcher and Computational Data Scientist at the University of Cambridge,Centre for Risk Studies (see  Website: http://www.alirais.com )

 

ESRC Conference 2014

 

Diversity in macroeconomics: new perspectives from agent-based computational, complexity and behavioural economics

The 2014 conference is co-hosted with the Economic and Social Research Council and organised by Sheri Markose from theDepartment of Economics. It will critically examine established thinking and bring together a range of new perspectives on identifying future directions for macroeconomics and policy.

Developments from at least three new branches of economics, agent-based computational, complexity and behavioural economics, arising from highly interdisciplinary studies of computational and digital technologies, complexity sciences and neuro-physiology of the brain, will be addressed.

 

More Details!

 

 

MSc Computational Economics, Financial Markets and Policy

 

NEW- Starting in Economics Department, University of Essex

 

Designed by Sheri Markose, this new MSc offers a revolutionary and interdisciplinary study of macro-economics, financial markets and financial regulation. In addition to students with a background in economics, finance or business, it is open to students with strong ‘quant’ backgrounds in computer science, physics, engineering and mathematics.

 

The financial crisis and global recession have triggered a search for new perspectives to deal with highly interconnected, global financial and industrial organizations. The traditional Economics curricula has proven to be behind the curve regarding 21st century developments. The new MSc pushes the boat out in these respects and provides a strong policy orientation and operational content, including a special module to undertake a cutting-edge project with leading experts and practitioners.

 

The new MSc provides rigorous training in :

  • economics, finance and policy design;
  • multi-agent computational and simulation approach to complement statistics and econometrics;
  • lab-based instruction to build a range of computational models that include systemic risk analysis;
  • financial networks and market micro-structure of electronic stock markets; the use of serious games and complexity economics for policy.

 

The new MSc will benefit those looking for careers in regulatory institutions (central banks, IMF, OECD etc), the Treasury and civil service, real world problem solving and further PhD work.

 

More information here.

 


 

Paper in Journal of Economic Bahavior and Organization

 

Sheri Markose, Simone Giansante, Ali Rais Shaghaghi, ‘Too interconnected to fail’ financial network of US CDS market: Topological fragility and systemic risk, Journal of Economic Behavior & Organization,

Available online 31 May 2012, ISSN 0167-2681, 10.1016/j.jebo.2012.05.016.

(http://www.sciencedirect.com/science/article/pii/S0167268112001254)

 

 

March 2011- 30 Dec 2011 Systemic Risk From Global Financial Derivatives

Sheri Markose was appointed by the Department of Monetary and Capital Market of the International Monetary Fund to lead research on a project on modelling systemic risk from financial derivatives. She visited the IMF, 6-9 December 2011 to present her results. She has characterized the phenomenon of too interconnected to fail (TITF) as one in which the failure of a highly connected large complex financial intermediary can bring down the top tier of 22 clustered similarly connected FIs. She has designed a super-spreader tax based on the eigenvector centrality of the LCFIs so that they internalize the cost of their systemic risk to the rest of the system. The highly tiered structure of the derivatives market enables her to construct a lite superspreader tax escrow fund of only $66 bn which can prevent the failure of a highly unstable $650 trillion global derivatives market.

Slides of IMF talk

The software for systemic risk and network analysis was developed by Sheri Markose with Simone Giansante and Ali Rais Shaghaghi.

6- 9 October 2011 Global Economic Sysmposium (GES) at the Kiel World Instititute

 

Sheri Markose contributed to the panel on Coping With Systemic Risk at the 2011 GES.

Sheri's written submission for the GES which she revised for the UK Office of Science and Technology Foresight Complexity Matters Workshop 25 October 2011 can be found here.

 

 

Consultant and Advisor to Reserve Bank of India

Sheri Markose has been appointed as consultant to the Reserve Bank of India Financial Stability Division for the purpose of providing expert guidance for analyzing large bilateral financial data as also for the development of technical capacity on information technology based financial analysis. Simone Giansante has also been included in this consultancy role. Simone and Sheri will visit the RBI in Mumbai in April end 2011to help set up the network based simulators for systemic risk analysis. In August 2010, Sheri had given a talk and tutorials at the RBI Financial Stability Division on new complexity perspective on systemic risk management and also on the need for ICT to automate financial data access in India and the use of network analysis to visualize and model systemic risk.

 

The Generalized Extreme Value (GEV)Distribution, Implied Tail Index and Option Pricing

 

Markose, S.M and Amadeo Alentorn , 2011, “The Generalized Extreme Value (GEV)Distribution, Implied Tail Index and Option Pricing”,  Forthcoming Spring 2011,  Journal of DerivativesEditor Stephen Figlewski and referee consider this to be a definitive and ‘illuminating’ paper on the modelling of  extreme events in finance.

 

 

 

IMF Conference 2010

 

Professor Sheri Markose of the Economics Department, will be addressing a workshop on “Operationalizing Systemic Risk Monitoring” at the International Monetary Fund (IMF) in Washington DC on the 26-29 May 2010.  

 

The purpose of the workshop is to discuss how early warning systems can be developed for systemic risk and to influence policy making in the area. A high powered group of academics, central bankers and policy makers will be present at this IMF workshop.  Sheri will present work developed at the university on building computational models of financial networks to monitor the onset of a financial contagion. Sheri has helped pioneer multi-agent models of financial networks for purposes of designing robust policy.

 

IMF CONFERENCE WEBSITE

 

Ruhr University Bochum Germany Lectures

24-26 May 2010:  Invited Lecture Series at Economics Department Ruhr-Universität Bochum (Invited by Professor Michael Roos) on  Financial Markets as Complex Adaptive Systems: Agent Based Computational Economic (ACE) Modelling of  Financial Micro-Structure, Financial Networks and Policy Design. Sheri will deliver 4 Lectures over 2 days to PhD students and staff on new complexity perspective for economic analysis and policy design that she pioneered at the CCFEA. 

     

Outline for lectures and lecture notes

 

MAF 2010

7-9 April 2010  Keynote Speaker at  MAF 2010 -International Conference for Mathematical and Statistical Methods for Actuarial Sciences and Finance, Villa Rufolo - Ravello, Italy, web site: http://maf2010.unisa.it
Other MAF 2010 Keynote Speakers are Narayanaswamy Balakrishnan (McMaster University, Canada); Giampiero Gallo (University of Florence, Italy); Sheldon M. Ross (University of California, Berkeley) U.S.A.

 

ECB Workshop on "Recent advances in modeling systemic risk using network analysis", 5 October 2009

Prof. Sheri Markose and Dr Simone Giansante attended the workshop and presented the working paper "Too Interconnected To Fail: Financial Networks of CDS and Other Credit Enhancement Obligations of US Banks". The presentation was well received by the participants.

 

Click to download:

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    Kimmo Soramaki has an interesting weblog on Financial Network Analyses, also view his page on current ECB workshop.

     

    GREQAM (Aix en Provence) SUMMER SCHOOL

    July 6- 10 2009 Invited Lectures at the GREQAM (Aix en Provence) SUMMER SCHOOL : Financial Micro- Structure and Contagion.  

     

    Also other team members including Dr. Simone Giansante, Ali Rais Shaghaghi and Mateusz Gatkowski presented at the summer school.

     

    CDO/ABX Simulator coming soon

     

    CDO/ABX Simulator and corresponding research results will be available online.

     

    Linkedin group

     

    Checkout our Linkedin group Agent-based Computational Economics.