IEOR-DRO Seminar: Albert Menkveld (Univ. Amsterdam)
November 1, 2016 | 1:00pm - 2:10pm
IEOR-DRO Seminar: Albert Menkveld (Univ. Amsterdam)Location: MUDD, 303
Title: Crowded Trades: An Overlooked Systemic Risk for Central Clearing Parties
Speaker: Albert J. Menkveld, VU University Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)
Abstract: Counterparty risk could hamper trade and worsen a financial crisis. A central clearing party (CCP) insures traders against counterparty default and thus benefits trade. CCP default, however, becomes a new systemic risk. CCP risk management does not account for the risk associated with crowded trades. This paper proposes a CCP exposure measure based on tail risk in clearing member portfolios. It identifies and measures crowded-trade risk and assigns it to clearing members according to the polluter pays principle. CCP data show that crowded-trade risk is highest on the two peak margin days, about a third of total CCP exposure.
Bio: Albert Menkveld is Professor of Finance at VU University Amsterdam and Fellow at the Tinbergen Institute. In 2002, he received a Tinbergen PhD from Erasmus University Rotterdam. He was on visiting positions at various U.S. schools: Wharton in 2000, Stanford in 2001, and NYU in 2004-2005 and in 2008-2011. Albert's research agenda is focused on securities trading, liquidity, asset pricing, and financial econometrics. He has published in various journals, for example, the Journal of Finance, the Journal of Financial Economics, and the Journal of Business and Economic Statistics. In 2010 he received a five-year VIDI grant from the Netherlands Organization for Scientific Research (NWO), in 2007 the Pierson medal ('Dutch Bates Clark') from the Royal Dutch Economic Association, in 2003 a Lamfalussy scholarship from the European Central Bank, and in 2001 the Josseph de la Vega Prize from the Federation of European Exchanges. Albert is Associate Editor at the Review of Asset Pricing Studies. He has been member of the European Finance Association (EFA) Executive Committee since 2014, Group of Economic Advisors of the European Securities and Market Authority (ESMA) from 2011 until 2014, and a member of the academic council of the Autorité des Marchés Financiers ("French SEC") since 2004.