The appropriateness of ISDA SIMM for delta risk initial margin calculations in the South African over-the-counter interest rate swap market

Cronje, Robert (2020-12)

Thesis (MCom)--Stellenbosch University, 2020.

Thesis

ENGLISH SUMMARY : This research assignment assesses the appropriateness of the calibrations in the ISDA SIMM for calculating delta risk initial margin (IM) in the current over-the-counter interest rate swap market in South Africa. Three main experiments are conducted that include novel ways of delineating and uncovering potential risks in the ISDA SIMM. By comparing the delta risk IM obtained using the standard model and that of a filtered historical simulation expected shortfall model that is calibrated to the South African swaps index curve, the IM appropriateness can be inspected for various profiles based on their relative sensitivities to the tenors of the swap curve. The experiments show that the ISDA SIMM is appropriate in most cases, but due to its broad calibrations, some shortfalls are shown to exist. The results are standardised throughout and are independent of absolute size, as liquidity and concentration features are deliberately excluded. This makes the results more generally applicable and also makes all the results obtained in the analyses comparable. The framework developed here can be replicated by practitioners using their own systems in order to obtain results that meet their internal calibrations as well as their specific risk and return requirements.

AFRIKAANSE OPSOMMING : Hierdie navorsingsopdrag beoordeel die toepaslikheid van die kalibrasies in die ISDA SIMM vir die berekening van die aanvangsmarge (AM) van die delta-risiko in die huidige oor-die-toonbank rentekoersruilkontrakmark in Suid-Afrika. Drie hoofeksperimente word uitgevoer wat nuwe maniere insluit om potensiële risiko’s in die ISDA SIMM te ondek en te omlyn. Deur die AM van die delta-risiko wat met die standaardmodel verkry word, te vergelyk met die van ’n gefiltreerde historiese simulasie-verwagte tekortmodel wat gekalibreer is deur die Suid-Afrikaanse uitruilkontrakindekskurwe te gebruik, kan die toepaslikheid van die AM ondersoek word vir verskillende profiele op grond van hul relatiewe sensitiwiteit vir die tenore van die ruilkurwe. Die eksperimente toon dat die ISDA SIMM in die meeste gevalle toepaslik is, maar daar is blykbaar ’n aantal tekortkominge as gevolg van die breë kalibrasies. Die resultate word deurgaans gestandaardiseer en is onafhanklik van die absolute grootte, aangesien likiditeits- en konsentrasie-kenmerke doelbewus uitgesluit word. Dit maak die resultate meer algemeen toepaslik en maak ook al die resultate wat in die ontledings verkry is, vergelykbaar. Die raamwerk wat hier ontwikkel word, kan herhaal word deur praktisyns wat hul eie stelsels gebruik om resultate te verkry wat voldoen aan hul interne kalibrasies, sowel as hul spesifieke risiko- en opbrengsvereistes.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/109302
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