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Central counterparties

Inspired by the joint work with the Hungarian Central Counterparty (KELER CCP Ltd.), we started to work on several research topics in connection with the new regulation (EMIR) following the crisis of 2007-2009. To reduce systemic risk, the role and risk management of CCPs gained more attention, and several questions arose both form theoretical and practical perspectives:

  • Margin calculation
  • Anticyclical policies
  • Measuring stress for a CCP
  • The connection of risk management waterfall elements


Bella, M., Szodorai, M. & Váradi, K. (2018). Methodological comparison of central counterparties’ and credit institutions’ stress tests at European level. Forum on Economics and Business, 21(316), pp. 33-65.

Friesz, M., Muratov-Szabó, K., Prepuk, A. & Váradi, K. (2020). Stress test of central counterparties in the case of separated default funds – planning the default fund and calculating its size. Economy and Finance, 7(2), pp. 199-217.

Ladoniczki, S. & Váradi, K. (2018). Initial margin calculation methodologies of clearing houses. Economic Review, 65(7-8), pp. 780-809.

Váradi, K. (2018). The critique of the regulation of guarantee systems operated by central counterparties. Economy and Finance, 5(2), pp. 112-127.

Béli, M. & Váradi, K. (2017). A possible methodology for determining the initial margin. Financial and Economic Review, 16(2), pp. 119-147.


Compression is a type of multilateral netting, the netting of cycles in financial networks results in reduced exposures.

Portfolio compression is an act in financial markets where the financial obligations are cleared in a cycle after the mutual agreement of the agents involved. The coordination of clearing can be done by private agencies or by governmental agencies, as in Romania.

Circulation problems with no monetary transfers have been used in the economics literature in the context of time banks, shift re-assignments, students exchanges. Kidney exchange programmes can provide examples for exchange problems with bounded length cycles.

The main questions to be clarified are the following:

  • What are the current practices in Hungary/Europe/World?
  • Where can we see governmental or private coordinating agencies, how do they operate?
  • Do the agents have preferences? Where are these coming from? Are they independent for paying/receiving obligations?
  • May the agents agree on automatic clearing based on agreements, or shall the clearing cycles be approved one-by-one?
  • What solutions are desirable for the agents and for the coordinator?
  • What mechanisms, algorithms can provide them? What are the possible strategies of the agents?


P. Biró, J. vd Klunder, D.F. Manlove., Modelling and optimisation in European Kidney Exchange Programmes. European Journal of Operations Research, 292(2), (2021) 447-456.

P. Biró, B. Haase, J. vd Klunder., Building kidney exchange programmes in Europe – An overview of exchange practice and activities. Transplantation, 103(7), (2019) 1514-1522.

Clearing in Financial Networks

In financial networks, agents are linked to each other with financial contracts. A clearing procedure specifies how much money each agent will end up, and in particular, who will go bankrupt. In the case of the proportional bankruptcy rule, the bankrupt agent’s assets are distributed in proportion to the claims. In financial networks, in the case of circular debts, the agents’ debt payments depend on each other. It makes the analysis difficult; one practically has to solve a system of equations. We use axiomatic examination, i.e., we give such independent properties that only the solution of the system of equations satisfies.

We show very general conditions under which all decentralized clearing processes lead essentially to the same as a centralized clearing procedure. As a policy implication, it is not necessary to collect and process all the sensitive data of all the agents simultaneously and run a centralized clearing procedure. Our main application is financial networks, but our results can also be applied to supply chains, international student exchange, servers that process jobs, and time banks.

Central clearing counterparties also face network effects of clearing. Blockchains offer the ability to validate the execution and settlement of a transaction carried out upon its network without the need for a central third party, using distributed ledgers.


Csóka, P., Herings, P.J.J. (2021), An axiomatization of the proportional rule in financial networks. Management Science, 67 (5) 2799-2812. Get this paper as a .pdf file.

Csóka, P., & Herings, P.J.J. (2018), Decentralized clearing in financial networks. Management Science, 64 (10), 4681-4699. Explanation in plain language and a presentation.

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GEN.:2023.12.01. - 14:32:07