Mathematical Finance & Financial Data Science Seminar

An Enhanced Initial Margin Methodology to Manage Tail Credit Risk

Speaker: Lucia Cipolina Kun, Morgan Stanley

Location: Warren Weaver Hall 1302

Date: Tuesday, September 24, 2019, 5:30 p.m.


Recently Regulators issued the Uncleared Margin Rules requiring the posting of initial and variation margin for deals traded bilaterally between financial institutions. The use of a standardized initial margin is now widespread in the industry but its simplified approach comes with its limitations. We propose a method to improve the initial margin calculation to capture the credit tail risk arising particularly from lower rated counterparties.

The proposed methodology is fully compliant with the risk-neutral pricing framework, and enables improved risk management for dealers and, subsequently, a route for troubled institutions to access the derivative markets.

[Presentation slides]

Bio – Lucia Cipolina Kun

Lucia Cipolina-Kun is a Quantitative Analyst in Portfolio Risk and Margining at Morgan Stanley.  In this role, she develops methodologies to quantify and manage the counterparty risk of the firm. In particular, she focuses on the modelling and monitoring of margins and collateral. Prior to this role, Lucia worked as a quant risk analyst at Bank of America and at HSBC where she contributed to the development of the Margin Valuation Adjustment and  the implementation of the SIMM and FRTB initiatives.  Lucia received an MSc in Mathematics from NYU’s Courant Institute.