680	RWTH Publication No: 1003619        2024
TITLE	Dynamics of Shocks in Financial Markets Mitigated by a Central Clearing Counterparty
AUTHORS	Stefano Marchesani, Gabriella Puppo, Sara Veneruso
ABSTRACT	Central Clearing Couterparties (CCPs) serve the purpose of making financial markets less risky during financial crises by limiting the contagion of losses which naturally happens when a financial system is hit by a shock. In this work, financial markets mitigated by a CCP are studied, and shocks propagates accordingly to the DebtRank model: when a financial institution suffers a loss, distress propagates to its creditors and debtors, who in turn suffer losses, which themselves propagate and so on. Thus, in this model, inter-connectivity plays a crucial role in evaluating systemic risk. In this work we re-propose the original DebtRank model and enhance it in a few directions. First of all, we propose alternative ways to establish the connections between the players of the financial market and we study the stability of the system in a simple yet non-trivial case. This gives new stability results with respect to what is currently present in the literature. We then consider how shocks propagate differently if we change the initial state of the system and the model parameters.
KEYWORDS	Central clearing counterparty, shock propagation, financial networks, financial market
DOI	10.2139/ssrn.4719723