How Does a Clearing House’s Risk Model Manage Systemic Risk?
The risk model sets appropriate margin levels, conducts stress tests, and monitors member exposures to ensure the clearing house remains solvent even under extreme market stress. By containing the failure of a single member and preventing a cascade of defaults, the clearing house acts as a crucial firewall against systemic risk.
Glossar
Risk Model
Calibration ⎊ A risk model within cryptocurrency, options, and derivatives contexts functions as a quantitative framework designed to assess and manage potential losses stemming from market fluctuations and instrument-specific characteristics.
Clearing House
Role ⎊ The Clearing House acts as a central counterparty (CCP) in traditional and centralized crypto derivatives markets, interposing itself between buyers and sellers to guarantee the performance of the contract.
Regulatory Capital Requirements
Framework ⎊ Regulatory capital requirements, within the context of cryptocurrency, options trading, and financial derivatives, represent a layered system of financial safeguards designed to mitigate systemic risk and protect market integrity.