In this paper we study the relationships among financial market sub-segments as a way to identify a potential situation of financial distress through increased co-movements among them. To study how sub-markets are mutually co-dependent, we combine the provision of granular data on Over-the-Counter (OTC) derivatives by trade repositories and the Joint Probability of Distress (JPoD) approach introduced by the International Monetary Fund (IMF). In doing this, we define an indicator which combines some distress drivers and we observe that results on co-dependencies are close to the practical intuition: similarities be- tween financial and contractual terms seem to be responsible for stronger co-movements among sub-markets. However, high values for JPoD even in correspondence of quite dis- similar sub-markets suggests the presence of other drivers which need to be investigated in future research. To the best of our knowledge, this is the first empirical study on systemic risk assessment based on micro-founded trade repositories’ data on Interest Rate Swap (IRS).

Assessing financial distress dependencies in OTC markets: a new approach using Trade Repositories data

Crimaldi I;
2016-01-01

Abstract

In this paper we study the relationships among financial market sub-segments as a way to identify a potential situation of financial distress through increased co-movements among them. To study how sub-markets are mutually co-dependent, we combine the provision of granular data on Over-the-Counter (OTC) derivatives by trade repositories and the Joint Probability of Distress (JPoD) approach introduced by the International Monetary Fund (IMF). In doing this, we define an indicator which combines some distress drivers and we observe that results on co-dependencies are close to the practical intuition: similarities be- tween financial and contractual terms seem to be responsible for stronger co-movements among sub-markets. However, high values for JPoD even in correspondence of quite dis- similar sub-markets suggests the presence of other drivers which need to be investigated in future research. To the best of our knowledge, this is the first empirical study on systemic risk assessment based on micro-founded trade repositories’ data on Interest Rate Swap (IRS).
2016
financial distress interdependence; joint probability of distress; interest rate swap; systemic risk; micro-founded trade repositories’ data
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.11771/4046
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