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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.

Clearing houses’ risk management is particularly important as they assume the counterparty risk of market participants. As a consequence, their failure could affect the whole market, which represents a fundamental systemic risk. The risk mitigation and risk management of CCPs is receiving increasing attention and a number of issues have arisen, both from a theoretical and a practical perspective:

  • Optimal margin calculation;
  • Anticyclical margin setting policies;
  • Measuring stress for a CCP;
  • The connection of risk management waterfall elements;
  • The role of own equity;
  • The relation of price and quantity uncertainties.

We invited Dr. David Murphy, who gave a presentation entitled “The Impulsive Approach to Procyclicality – Measuring the reactiveness of risk-based initial margin models to changes in market conditions using impulse response functions” as part of the Institute of Finance’s research seminar series.


Dömötör, B., Berlinger, E., & Bihary, Z. Dynamic Margin Optimization. Available at SSRN 4693317.

Friesz, M. (2023). Your skin or mine: Ensuring the viability of a central counterparty. Emerging Markets Review, 57, 101074.

Szabó Dávid Zoltán; Váradi Kata (2022): Margin requirements based on a stochastic correlation model, Journal of Futures Markets, 42(10), pp. 1797-1820.

Friesz Melinda; Muratov-Szabó Kira; Prepuk Andrea; Váradi Kata (2021): Risk Mutualization in Central Clearing: An Answer to the Cross-Guarantee Phenomenon from the Financial Stability Viewpoint, Risks, 9(8), Paper: 148.

Friesz Melinda; Váradi Kata (2021): Hogyan csinálják? Központi szerződő felek és klíringházak letétszámítási módszereinek összehasonlítása / How is it Done? Comparison between the Margin Calculation Methodology of Central Counterparties and Clearinghouses, Pénzügyi Szemle / Public Finance Quarterly, 66(3), pp. 406-422.

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.

Berlinger, E., Dömötör, B., & Illés, F. (2019). Optimal margin requirement. Finance Research Letters, 31.

Berlinger, E., Dömötör, B., & Illés, F. (2019). Anti-cyclical versus risk-sensitive margin strategies in central clearing. Journal of International Financial Markets, Institutions and Money, 62, 117-131.

Dömötör, B., & Váradi, K. (2019). Stock market stress from the central counterparty’s perspective. Studies in Economics and Finance.

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.

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.

Szanyi Csilla; Szodorai Melinda; Váradi Kata (2018): A supplement to the regulation of anti-cyclical margin measures of clearing activities, SSRN working paper, 19 p.

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

Berlinger, E., Dömötör, B., Illés, F., & Váradi, K. (2016). Stress indicator for clearing houses. Central European Business Review, 5(4), 47.

Conference proceedings:

Felföldi-Szűcs Nóra; Králik Balázs; Váradi Kata (2022): Implied volatility based margin calculation on cryptocurrency markets, In: Hameed, I.A.; Hasan, A.; Alaliyat, S.A.-A.; Iacono, M. (szerk.): Proceedings of the 36th ECMS International Conference on Modelling and Simulation, Aalesund, Norvégia: European Council for Modelling and Simulation, pp. 70-77.

Váradi Kata; Muratov-Szabó Kira (2022): Changes in Initial Margin and Market Liquidity During the Covid-19 Pandemic, In: Nedelko Zlatko (szerk.): 6th FEB International Scientific Conference: Challenges in economics and business in the post-COVID times, Maribor, Szlovénia: University of Maribor, pp. 319-328.

Friesz, Melinda; Váradi, Kata (2021): Clearinghouses versus central counterparties from margin calculation point of view, In: Al-Begain, Khalid; Iacono, Mauro; Campanile, Lelio; Bargiela, Andrzej (szerk.): Proceedings of the 35th ECMS International Conference on Modelling and Simulation ECMS 2021, Kingston Upon Thames, Egyesült Királyság / Anglia, Dudweiler: European Council for Modelling and Simulation, pp. 75-81.

Muratov-Szabó Kira; Prepuk Andrea; Szodorai Melinda; Váradi Kata (2020): The Necessary Size Of The Skin-In-The-Game To Stay In The Game, In: Steglich, M; Mueller, C; Neumann, G; Walther, M (szerk.): Proceedings of the 34th International ECMS Conference on Modelling and Simulation, ECMS 2020: June 2020, United Kingdom, European Council for Modelling and Simulation, pp. 122-128.

Illés Ferenc; Muratov-Szabó Kira; Prepuk Andrea; Szodorai Melinda; Váradi Kata (2019): Together Forever or Separated for Life: Stress tests of central counterparties in case of merged and separated default funds, In: Iacono Mauro; Palmieri Francesco; Gribaudo Marco; Ficco Massimo (szerk.): Proceedings of the 33rd International ECMS Conference on Modelling and Simulation: ECMS 2019, Caserta, Olaszország: European Council for Modelling and Simulation, pp. 78-84.

Szanyi Csilla; Szodorai Melinda; Váradi Kata (2018): Supplementation Of The Regulation Of Anti-Cyclical Margin Measures, In: Nolle, Lars; Burger, Alexandra; Tholen, Christoph; Werner, Jens; Wellhausen, Jens (szerk.): ECMS 2018 Proceedings: 32nd European Conference on Modelling and Simulation, Wilhelmshaven, Németország: European Council for Modelling and Simulation, pp. 74-80.

Béli Marcell; Szanyi Csilla; Váradi Kata (2017): A Margin Calculation Method For Illiquid Products, In: Zoltayné Paprika Zita; Horák Péter; Váradi Kata; Zwierczyk Péter Tamás; Vidovics Dancs Ágnes; Rádics Péter János (szerk.): Proceedings 31st European Conference on Modelling and Simulation ECMS 2017, Budapest, Magyarország, Nemzetközi: European Council for Modelling and Simulation, pp. 100-105.


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. et.al., 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. et.al., 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. (2024), Uniqueness of clearing payment matrices in financial networks. Mathematics of Operations Research, 49 (1), 232–250.

Csóka, P., Illés, F., Solymosi, T. (2022), On the Shapley value of liability games. European Journal of Operational Research, 300 (1), 378-386.

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.:2024.05.26. - 06:41:13