Edhec-Risk
Non-Financial Risks, Regulation and Innovations

The FBF "Innovations and Regulations in Investment Banking" Research Chair

The aim of the Fédération Bancaire Française (FBF) "Innovations and Regulations in Investment Banking" Research Chair is to provide advanced research in four areas: skewness as an asset class; corporate and sovereign credit default swap (CDS) markets; the evaluation of policies to regulate financial markets; and options on liquidity.

The chair is under the scientific responsibility of Lionel Martellini, Director of EDHEC-Risk Institute.

The research will begin by analysing the question of skewness as an asset class. This major innovation could usefully complete the asset mix available to long-term investors, with strong expected benefits in terms of downside risk protection, a source of increasing concern for investors and regulators alike.

It also aims to provide an in-depth analysis of corporate and sovereign CDS markets and their economic usefulness.

The research will evaluate a variety of regulatory measures and their impact on markets and on the real economy

Finally, the chair will look at options on liquidity in a general equilibrium model with market frictions.

Details of the previous FBF research chair on "Structured Products and Derivatives" may be found here.


Research Output

Initial Margin for Non-Centrally Cleared OTC Derivatives: Overview, Modelling and Calibration
June 2016
Dominic O'Kane
This paper provides a detailed overview and analysis of the forthcoming new framework to be used by large financial institutions to determine initial margin (IM) and variation margin (VM) payments when trading non-cleared over-the-counter (OTC) derivatives. The paper provides an overview of the new initial margin (IM) regulations that will come into effect in September 2016. Of the two proposed approaches, it explains why the model-based approach is the only framework that correctly captures the counterparty risk presented by non-centrally cleared OTC derivatives. It also sets out the modelling requirements specified by the WGMR, and discusses modelling implementation issues. In particular, the fact that the framework prevents the risk of assets with multiple market factors from being netted fully is discussed. Additionally, it describes the current IM model being developed by the International Swaps and Derivatives Association (ISDA). It then presents some model calibrations across a range of asset classes, performed in a manner that conforms to the WGMR requirements.

The Intended and Unintended Consequences of Financial-Market Regulations: A General Equilibrium Analysis
January 2016
Adrian Buss, Bernard Dumas, Raman Uppal, Grigory Vilkov
In a production economy with trade in financial markets motivated by the desire to share labor-income risk and to speculate, this paper shows that speculation increases volatility of asset returns and investment growth, increases the equity risk premium, and reduces welfare. Regulatory measures, such as constraints on stock positions, borrowing constraints, and the Tobin tax have similar effects on financial and macroeconomic variables. Borrowing limits and a financial transaction tax improve welfare because they substantially reduce speculative trading without impairing excessively risk-sharing trades.

Optimising the Compression Cycle: Algorithms for Multilateral Netting in OTC Derivatives Markets
March 2014
Dominic O’Kane
Concerns about systemic credit risk in the financial system due to the OTC derivatives market has encouraged the use of counterparty credit risk mitigation techniques, including the use of compression. In compression, market participants share position information via a third party company, TriOptima, which then proposes a set of trades which will “compress” their multilateral exposures. In this paper we propose and analyse a set of optimal compression algorithms for fungible derivatives. We find that they all perform extremely well across a range of criteria and we discuss their relative attributes. Our focus is on the CDS market, although the methods analysed here can be applied to other OTC derivative markets. We argue that, if done optimally, compression is an effective counterparty risk mitigation technique that should be encouraged by regulators, especially as we show that the benefits increase dramatically with the number of participants.


Related Events

Events in French

 Séminaire : Trading et investissement dans les marchés opaques
22 septembre 2016 - Paris

La Fédération Bancaire Française organise dans ses locaux à Paris, le 22 septembre 2016, un séminaire sur les stratégies de transaction et d'investissement dans des marchés et actifs opaques ou illiquides, qui réunira les représentants des deux chaires qu’elle finance : EDHEC-Risk Institute et Toulouse, School of Economics.

Lors de ce séminaire d’une demi-journée, Raman Uppal, Professeur de Finance de l’EDHEC Business School, présentera les résultats de ses derniers travaux sur la gestion et l’évaluation d'actifs opaques et illiquides. Suivra ensuite une présentation du Professeur Sabrina Buti, de l’Université Paris-Dauphine sur les Dark Pools. Enfin, une présentation de Bruno Biais, Directeur de Recherche CNRS, Toulouse School of Economics, analysera la liquidité et l’information sur les marchés des obligations émises par les entreprises.

Ces présentations seront commentées par trois membres des comités scientifiques des chaires: Kheira Benhami (Adjointe au Directeur de la Division Etudes, Stratégie et Risques, Autorité des Marchés Financiers), Michel Crouhy (Responsable Recherche et Développement, Natixis) et Thierry Roncalli (Responsable Recherche et Développement, Lyxor Asset Management).

 Atelier : Les innovations et la régulation financière dans la banque d’investissement
20 janvier 2016 - Paris

La chaire de recherche sur les innovations et la régulation dans la banque d’investissement conduite par l’EDHEC-Risk Institute avec le soutien de la Fédération Bancaire Française (FBF) se décline sur quatre thèmes principaux : la skewness en tant que classe d’actifs ; l’analyse du marché des contrats d’échange sur risque de crédit (CDS) souverains et d’entreprise ; l’évaluation des politiques de régulation des marchés financiers ; et les options sur la liquidité.

Lors d’un atelier d’une demi-journée le 20 janvier 2016, dans les locaux de la FBF à Paris, Raman Uppal, Professeur de Finance de l’EDHEC Business School, présentera les résultats de ses derniers travaux sur les conséquences prévues ou imprévues de la régulation des marchés financiers. Suivra ensuite une présentation du Professeur Jean-Christophe Meyfredi, de l’EDHEC Business School, sur l’impact de l’interdiction de l’UE de la vente à découvert sur le marché des CDS souverains. Enfin, une présentation de Dominic O’Kane, Professeur de Finance Affilié à l’EDHEC Business School, analysera de manière approfondie les risques de contrepartie sur les marchés dérivés.

Chaque présentation sera commentée par deux des membres du comité scientifique de la chaire de recherche de l’EDHEC-Risk Institute : Thierry Roncalli, Responsable recherche et développement de Lyxor Asset Management, et Michel Crouhy, Responsable de la recherche et du développement de Natixis.


About the Fédération Bancaire Française

The French Banking Federation (FBF) promotes the banking and financial services industries in the French, European and international markets, and sets out the industry's positions and proposals to officials and regulatory authorities in the fields of business and finance. The FBF also issues professional recommendations and agreements, and makes its experience available to its members. Its mission also includes keeping members among French banks informed of anything that may concern their activities.

To fulfil its mandate, the FBF is structured around three departments:

  • Banking and Financial Activities and Research

    This department offers a full range of banking expertise, and oversees the FBF's commissions and committees in areas including retail banking and direct banking, investment banking and capital markets, risk control and capital adequacy requirements, payment systems and instruments, and legal and tax issues. It also negotiates and works with various French and European government and regulatory authorities.

  • Information and External Relations

    The role of this department is to anticipate changes in the political, economic and social environment, promote the role of the banking sector in society and keep the general public informed. It is responsible for public affairs, including relations with government officials, the media, consumers, young people and teachers. It makes sure that banks are kept informed, and organises the activity of the FBF's regional committees.

  • European and International Affairs

    This department, based in Brussels and in Paris, handles relations with EU institutions and the various bodies representing the banking and financial services industries in Europe. It monitors international issues and relations with global banking associations, and deals with issues that specifically concern foreign banks operating in France.

Contact:

Website: www.fbf.fr



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