Time for Stability in Derivatives Markets – a New Look at Central Counterparty Clearing for Securities Markets

The recent financial crisis has driven many plans for improving the stability and resilience of the global financial system. One concept, managing the risk of default in securities or financial derivatives markets through central counterparties, receives scrutiny in this report. The author examines the role centralized clearing parties could play in improving system resilience. These centralized clearing parties are institutions that interpose themselves between counterparties in financial transactions. The author offers a new look at what these institutions could achieve in over-the-counter derivatives trading and short-term funding markets. He places the emphasis on the core services they could provide: the diversification of counterparty risk and the redistribution of default losses among its members.Financial Services, derivatives, securities markets, central counterparty clearing

How Flexible Can Inflation Targeting Be? Suggestions for the Future of Canada's Targeting Regime

In Canada, inflation targeting is widely agreed to have been a success story, but questions about how the regime might be fine-tuned in 2011 remain open. This Commentary asks how much discretion an inflation-targeting Bank of Canada can be allowed without compromising the credibility of its low inflation goal.monetary policy, Bank of Canada, inflation targeting

Central counterparties

Central counterparties (CCPs) have increasingly become a cornerstone of financial markets infrastructure. We present a model where trades are time-critical, liquidity is limited and there is limited enforcement of trades. We show a CCP novating trades implements efficient trading behaviour. It is optimal for the CCP to face default losses to achieve the efficient level of trade. To cover these losses, the CCP optimally uses margin calls, and, as the default problem becomes more severe, also requires default funds and then imposes position limits

Kinetic Integrals in the Kinetic Theory of dissipative gases

The kinetic theory of gases, including Granular Gases, is based on the Boltzmann equation. Many properties of the gas, from the characteristics of the velocity distribution function to the transport coefficients may be expressed in terms of functions of the collision integral which we call kinetic integrals. Although the evaluation of these functions is conceptually straightforward, technically it is frequently rather cumbersome. We report here a method for the analytical evaluation of kinetic integrals using computer algebra. We apply this method for the computation of some properties of Granular Gases, ranging from the moments of the velocity distribution function to the transport coefficients. For their technical complexity most of these quantities cannot be computed manually.Comment: 32 page