Transaction clearing mode
At present, there are basically three liquidation modes in the commodity swap market: one is the OTC market mode, that is, the trading and liquidation of commodity swaps are carried out outside the organized exchange; Second, the trading link of swaps is conducted off-site while the clearing link is conducted on-site, such as CMEClearPort and SGXAsiaClear, which are actively promoted by most foreign exchanges after the introduction of Dodd-Frank Act. Thirdly, the trading links of commodity exchanges are carried out in SEF (Centralized Exchange Trading Facility), and clearing is carried out through Exchange, for example, Platts eWindow trading platform and ICE exchange clearing platform launched by ICE.
In the first case, both parties have to bear counterparty risks, mainly including market risks, which are caused by price changes of derivatives; Credit risk, that is, the risk that the counterparty cannot perform the contract; Settlement risk refers to the risk of fund payment caused by non-credit reasons; Force majeure risk refers to the risk caused by political, natural or other force majeure.
For the latter two cases, the exchange, as the central counterparty, can spread the risks of both parties to the transaction and bear the performance risk (or credit risk, that is, when one party defaults, the central counterparty must ensure payment to the other party to ensure the performance bond). As the central counterparty, in order to avoid the default risk of one party, the exchange needs to establish a risk management system before and during the transaction to manage the risks of the central counterparty.
Characteristics of cash flow
Swaps are essentially a combination of a series of forward contracts. For the party (which can be called the buyer) who exchanges the floating price at a fixed price, it can be understood as paying the "fixed price", that is, cash outflow and obtaining the "floating price" income; For the counterparty (seller), it is through the expenditure of "floating price" to obtain the income of "fixed price". Judging from its cash flow, commodity swap transaction is a spread transaction based on floating price and fixed price. In this sense, a commodity swap contract can also be understood as a spread contract.
Suppose the total quantity of goods is Q, pf stands for fixed price, pti stands for floating price at ti moment, I = 1, 2? , noun.
Assuming that the short-term interest rate at the moment of ti is ri, at the moment of ti, the discounted value of commodity value Vti can be expressed as Vti'=Vti×e-riti=Q×Pf×e-riti.
Similarly, at the moment of ti, the discounted value of commodity value Wti settled at floating price pti can be expressed as Wti'=Wti×e-riti=Q×Pti×e-riti.
Therefore, at the moment of ti, the net income of the buyer is Nti=Wti'-Vti'.
Accordingly, the seller's net income is opposite to the buyer's net income.
Risk exposure and management in bilateral markets
Under the bilateral settlement mode, swap transactions usually do not adopt the daily debt-free settlement system, so deposits are usually divided into initial deposits and maintenance deposits, which are mainly used to prevent settlement risks and liquidation risks caused by counterparty default.
The initial margin is mainly used to prevent the risk of dealing with swap positions after default, that is, the risk of liquidation. Generally speaking, the exposure to be covered by the initial margin can be considered from two angles: First, it is determined according to historical fluctuations. Usually, the method of value-at-risk assessment is used to estimate the maximum loss that may occur in history at a certain level of confidence, and there is enough margin to make up for the potential loss when the counterparty defaults. The second is based on the risk of liquidation. Liquidation risk refers to the disposal of default risk from another angle. If the institution can use liquid market tools (such as futures) to copy swap positions, then when the counterparty defaults, in extreme cases, the possible loss caused by future position liquidation is its corresponding risk exposure. For example, if the two parties agree to settle the swap transaction on the second day after the maturity date, the liquidation risk will usually be set according to the level of two price limits.
Maintaining margin mainly focuses on the floating profit and loss in a certain period, and determines the margin level, thus reducing the risk of settlement due. This part of the risk can be marked to the market for a certain period of time according to the agreement, and the deposit can be calculated according to the floating loss. For example, under the system arrangement of marking the market day by day, the floating profit and loss of swap positions can be calculated every day, and if there is a loss, the corresponding margin should be added.
Risk exposure and management of central counterparty market
The risk exposure and margin management mechanism of central counterparty market swap transactions are closely related to the mark-to-market system, the daily debt-free settlement system and the price limit system. The day-to-day mark-to-market system and the day-to-day debt-free settlement system require that the margin can cover the day-to-day price fluctuation, so the day-to-day price fluctuation is the main market fluctuation concerned by the central counterparty market. At the same time, under the price limit system, this daytime fluctuation is easy to measure and manage.
Risk exposure of swap products
The central counterparty usually needs to face the risk of default that may occur between the two parties to the transaction. Because commodity exchanges use net settlement, that is, the difference between fixed price and floating price is settled according to the quantity of commodities. This capital exposure is also the capital risk that the central counterparty needs to bear, which can be expressed as r = (pti-pf) × q.
At the initial state i=0 at a given moment, that is, time t0, the risk borne by the central counterparty is RT0 = (PT0-PF) × Q.
Then, at the next time point i= 1, that is, t 1, the risk borne by the central counterparty is rt1= (pt1-pf) × q (1).
Suppose the price fluctuation interval is [0, σ] at time [t0, t 1], and the commodity price at t 1 = PTO× (1σ) (2).
The biggest default risk of the central counterparty is the biggest loss of one party on a day when the price fluctuates extremely. Therefore, from the expressions (1) and (2), the maximum default risk in one day can be defined as RT1= [PTO× (1σ)-PF ]× Q.
Risk exposure management
When the exchange formulates the margin system, the daily margin of a single swap position should be able to cover this risk. It is worth noting that for transactions with the same swap target, the margin level of buyers and sellers is related to floating price and fixed price. In the swap transaction with the futures price as the floating price, the fluctuation range of the floating price is the limit of the futures price. Therefore, for fixed-price swap transactions, the margin level should be able to cover the risks brought by floating price fluctuations.
According to the above analysis of swap risk exposure, the deposit that the buyer needs to pay should cover his maximum loss (that is, the seller's maximum profit). Therefore, the risk exposure of the buyer is RT1= [PTO× (1-σ)-PF ]× Q (1).
The deposit that the seller needs to pay should cover his biggest loss (that is, the buyer's biggest profit). Therefore, the risk exposure of the seller is RT1= [PTO× (1+σ)-PF ]× Q (2).
We assume that both parties have conducted iron ore swap transactions, and the floating price refers to the contract price of iron ore futures 1405 of Dashang. It is known that the settlement price of floating price (futures price) of iron ore 1405 contract 20 165438+ 10 on October 4th is 950 yuan/ton, assuming that the fixing price signed by the two sides of the swap is 930 yuan/ton, the price limit of iron ore futures is known to be 4%. Then the profit and loss of iron ore swap position on that day (165438+1October 4th) is 20 yuan/ton. According to the above two formulas (1) and (2), we can calculate the maximum profit and loss of swap positions held by buyers and sellers in swap transactions.
According to the above situation, the margin set by the exchange should generally cover the maximum capital exposure of buyers and sellers.
The picture shows the actual profit and loss and the maximum capital exposure.
Risk exposure and management of futures contract portfolio
Composition of swap portfolio
Swap transactions are usually arranged by financial institutions. In order to avoid risks, financial institutions tend to sign agreements with different counterparties at the same time that can offset each other. In fact, financial institutions often hold swap positions, which means that they usually sign swap agreements with one party and then look for reverse positions. During this period, financial institutions use other products (such as futures) to hedge the risks of swap products they already hold. In fact, any party will face the problem of hedging the risk of a single swap position in the transaction.
The swap position S actually consists of two parts, one part can be understood as a forward contract with a fixed price pf, and the other part can be understood as a forward contract with a floating price pt. For the segment with fixed price, it can be understood as the fixed position cost of holding the swap position, so it is not difficult to judge that the risk of the swap position mainly comes from the segment with floating price. As long as the reverse position is established, the risk of swap position can be effectively managed. Therefore, as the central counterparty, the exchange can formulate corresponding collateral management measures, such as allowing securities such as treasury bonds and standard warehouse receipts to be used as collateral, and investors can offset the margin with securities according to the relevant regulations of the exchange to reduce the cost of fixed positions.
Portfolio risk
For a portfolio with swap positions, the exposure of swap positions is the difference between floating prices and fixed prices. Because the fixed price is constant, the changing trend and fluctuation of this risk exposure are mainly related to the floating price. In response to this feature, investors can build the following two combinations:
In the first case, investors can construct a spread combination with a long futures position and a short futures position to form a protection position with the same (or similar) spread as the swap position and the opposite direction. Portfolio includes swap position, long futures position and short futures position, that is, portfolio=(S, F 1, F2), where s is swap position and F65438+. Among them, F 1 is used to copy floating prices, and the price fluctuation characteristics and long-term trends are similar to those of floating prices; F2 is used to copy the fixed price, and its price fluctuates slightly and is relatively stable. Then the risk exposure formed by this portfolio is │ P 1-P2 │-PT-PF │.
In the second case, because the risk of swap positions mainly comes from the floating price, investors can establish a future positions opposite to the floating price, that is, Portfolio=(S, F 1), which can actually be regarded as a combination of two future positions and a forward contract. For the buyer, it is mainly to avoid the risk of falling floating prices, so it is necessary to establish a short future positions; For the seller, it is mainly to avoid the risk of price fluctuation, so it is necessary to establish a long future positions. Therefore, the net value of the portfolio formed by the swap position and future positions should be the sum of the net value of the swap position and the net value of future positions. We assume that the transaction price of future positions established by the seller is F, then the net value of the seller's portfolio can be expressed as n = (PF _ PT)+(PT _ F) = PF _ F.
Similarly, if the transaction price of future positions established by the buyer is f', then the net value of the buyer's portfolio can be expressed as N=(pt_pf)+(f'_pt)=f'_pf.
In short, the risk management ability of swap positions depends on how buyers and sellers establish future positions. Ideally, the transaction price f of the future position is equal to the fixed price of the swap, so that the risk exposure of the portfolio is zero. However, in reality, it is sometimes difficult to reach the ideal state, and either party will establish a protective future position at a price favorable to itself, so the portfolio risk exposure (net value) is fixed.
Risk exposure management of portfolio
In the first case, as far as long positions are concerned, they should hold a long position with floating price, a short position with similar floating price in future positions and a long position with similar fixed price. Therefore, the risk exposure of this combination t 1 is RT1= [PT0× (1σ)-PF-P/kloc-0 /× (1σ)+P2× (1σ) ]×. When c=0, the risk exposure of this portfolio is zero, while when c > 0, it means that this portfolio has increased a fixed (stable) cash flow, which is a relatively fixed stock and will not be generated. So you can use fixed income products (national debt, etc.) as a guarantee. ).
In the second case, the risk exposure of combination t 1 is RT1= (PF-F) × Q.
Similarly, using the above example, we assume that the seller buys an iron ore futures contract (long position) in order to avoid the risk caused by floating price increase, assuming the opening price is 935 yuan/ton, then the net value of this combination on165438+1October 4 is (930-950)+(950-935.
In the above example, the seller's portfolio risk exposure is 5 yuan/ton (see the table below). It is worth noting that in the whole investment cycle, the risk exposure of the portfolio is fixed, so the portfolio needs to maintain a fixed margin level, which is far less than the margin of the current swap position.
Conclusion and prospect
At present, the trend of "on-site trading" in the OTC market is becoming more and more obvious. The exchange can provide extended services for the OTC market in terms of trading and clearing, establish an effective OTC market risk management mechanism, give full play to the advantages of financial market infrastructure in the trading and clearing fields, and ensure the stable operation of the market.
First, explore the risk characteristics and measurement scheme under the bilateral clearing mechanism, so as to design a risk management system that is more in line with bilateral clearing; Secondly, study the risk characteristics of OTC derivatives portfolio under centralized clearing mode and formulate corresponding risk management system; Thirdly, in the process of connecting OTC market with OTC market, it is necessary to study the arrangement of cross-market cross-guarantee system. In addition, under the framework of on-site and off-site portfolio margin, the risk characteristics of off-site swap positions and on-site future positions are further analyzed, which provides reference for studying the portfolio margin system and further optimizes the transaction cost of investors.