FE Practitioners Seminar: Agostino Capponi

April 23, 2018 | 6:00pm - 7:00pm

FE Practitioners Seminar: Agostino Capponi

Schapiro CEPSR, 530 W. 120 St., New York, NY 10027 Davis Auditorium
Title: The Collateral Rule: an Empirical Analysis of the CDS Market 

Abstract: We study the empirical determinants of collateral requirements in the cleared credit default swap (CDS) market: how margins depend on portfolio risks and market conditions, and what the implications are for theoretical models of collateral equilibrium. We construct a novel data set containing CDS portfolios and margins posted by all participants to the main CDS clearinghouse, ICE Clear Credit, covering 60% of the U.S. market. We provide direct empirical evidence that margins are much more conservatively set than what a Value-at-Risk (VaR) rule would imply, and are unequally implemented across participants. We show that more extreme tail risk measures have a higher explanatory power for observed collateral requirements than VaR, consistent with endogenous collateral theories such as Fostel and Geanakoplos (2015) where extreme events dominate in determining collateral. The dependence of collateral requirements on extreme tail risks induces potential nonlinearities in margin spirals, dampening small shocks and amplifying large ones. We also confirm empirically the main channel through which collateral-feedback effects operate in many theoretical models of equilibria with financial frictions, such as Brunnermeier and Pedersen (2009), highlighting the prominent role of aggregate volatility and funding costs. 
 
 
Bio: Agostino is an assistant professor in the Industrial Engineering and Operations Research Department at Columbia University. His research interests are in systemic risk and financial stability, economics of clearinghouses, market microstructure, and human-machine systems. He serves as a Consultant at the U.S. Commodity Futures Trading Commission, Office of the Chief Economist, on topics related to clearinghouse collateral requirements. His research has been funded by the NSF, DARPA, the Institute for New Economic Thinking, and the Global Risk Institute. Agostino is a recipient of the NSF CAREER award, a prize from the MIT Center for Finance and Policy and the Harvard Crowd Innovation Laboratory, the Bar-Ilan prize for general research in financial mathematics, and a Marie Curie fellowship from the European Commission. Agostino's research on clearinghouses, joint with the Department of Treasury's Office of Financial Research, has received attention by various media outlets, including Thomson Reuters, Bloomberg, and the American Banker. 
 
Agostino serves on the editorial boards of Mathematical Finance, Applied Mathematical Finance, Operations Research Letters, and as the Financial Engineering Department Editor of the Institute of Industrial Engineering Transactions. He also serves as the program director of the SIAM activity group in Financial Mathematics and Engineering, and as a Board member of Applied Probability for the INFORMS Society. Agostino received his Master and Ph.D. Degree in Computer Science and Applied and Computational Mathematics from the California Institute of Technology, respectively in 2006 and 2009.


500 W. 120th St., Mudd 315, New York, NY 10027    212-854-2942                 
©2014 Columbia University