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The Efficiency of Counterparty Netting in OTC Derivatives: How Clearing Solves the Uncleared Margin Puzzle

The phase-in period for initial margin on non-cleared derivatives has begun but analysis to date has focused primarily on margins for cleared vs. uncleared swaps using the Standard Initial Margin Model (SIMM) vs. the CME margin model.  

However, this is not the whole story and this paper also considers the margin efficiencies generated by counterparty netting within clearing and by using interest rate swaptions as a worked example, quantifies those margin efficiencies.