Wednesday, 23 September 2020

Published: CCP discounting big bang: convexity adjustment

 A new timely research paper developed by Marc has been published in Risk.Net. The paper is titled

CCP discounting big bang: convexity adjustment

The CCP discounting big bang in USD is planned to take place in mid-October. The paper has been published on 18 September 2020 and is available at (subscription required):


Central counterparties are planning big bang-like collateral transitions. The transitions are done in an illiquid market and some fair market values are unknown. The CCP-selected mechanism to deal with these unknowns gives rise to exotic convexity adjustments. In this paper, Marc Henrard analyses the origin of those adjustments and quantifies the resulting impact based on a model for the dynamics of the relevant discounting and forwarding rates