Central Clearing (FRM Part 2 – Book 2 – Credit Risk Measurement and Management – Ch 18)

Master Central Clearing (FRM® Part II, Credit Risk Measurement & Management) in one focused lesson. We explain what a central counterparty (CCP) is, how novation, netting, compression, and porting work, and why initial and variation margins, default funds, and the loss waterfall matter. Compare bilateral vs central clearing, vertical vs horizontal CCP models, wrong-way risk, liquidity facilities, auctions, fire drills, moral hazard, plus clear advantages and disadvantages for the exam. Prep with AnalystPrep: https://analystprep.com/shop/unlimite... AnalystPrep is a GARP-Approved Exam Preparation Provider for FRM Exams For all other courses, including CFA, actuarial, and graduate admission products, click here: https://analystprep.com/courses/ After completing this reading, you should be able to: Define a central counterparty (CCP) and describe the mechanics of central clearing. Explain the concept of novation under central clearing. Define netting, multilateral offset, and compression and provide examples of each. Describe the application and estimation of margin and default funds under central clearing. Discuss the risks faced by a CCP and the ways it manages its exposures. Provide examples of a loss waterfall. Explain the different methods of managing the default of one or more members of a CCP. Compare bilateral and central clearing. Compare initial margin and default fund requirements for clearing members in relation to loss coverage, cost of clearing, and moral hazard. Describe the advantages and disadvantages of central clearing. #FRM #CreditRisk #CentralClearing #CCP #RiskManagement #GARP #AnalystPrep