Over-the-counter (OTC) derivatives are believed to have played a significant role in the 2008 financial crisis. In an effort to prevent another crisis in the future, the US Government signed new regulations into law in 2010 that require OTC derivatives to be traded through Central Clearing Parties (CCPs). Theoretically, these regulations should induce more stability in the trading network. The model we propose uses probabilistic methods, including Gibbs Sampling, to sample different possible OTC derivative trading networks based on the small amount of data available to a regulator. Then, these networks are tested for the relative stability of each type of network: a bilateral trading network without a CCP, one with a single CCP, and one with multiple CCPs.

• This report represents the work of one or more WPI undergraduate students submitted to the faculty as evidence of completion of a degree requirement. WPI routinely publishes these reports on its website without editorial or peer review.

Creator

• Wellen, Natalie Stohlman

Publisher

• Worcester Polytechnic Institute

Identifier

• E-project-050117-032155

Award

• Provost's MQP Award

Advisor

• Sturm, Stephan

Year

• 2017

Date created

• 2017-05-01

Resource type

• Major Qualifying Project

Major

• Mathematical Sciences

Rights statement

• In Copyright

Last modified

• 2023-01-20