Counterparty Credit Exposure An Intuitive Guide To Credit Exposure Measurement PDF Download
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| Author | : Frederik Wulf |
| Publisher | : GRIN Verlag |
| Total Pages | : 30 |
| Release | : 2015-06-18 |
| Genre | : Business & Economics |
| ISBN | : 3956874889 |
Download Counterparty Credit Exposure. An Intuitive Guide to Credit Exposure Measurement Book in PDF, ePub and Kindle
Seminar paper from the year 2015 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,7, University of Hohenheim (Financial Management), course: Master seminary "Counterparty credit risk", language: English, abstract: The current interest in the topic of counterparty credit risk (CCR) and its exposure measurement began with the upcoming of the financial crisis, or to be more precise the bankruptcy of Lehman Brothers. Before then, the default of a counterparty of that size was out of the realm of possibility. The default of a counterparty that formerly was assumed as “too big to fail” prompted the need for a reconsideration of credit risk (Moser 2014, p. 429). Among the scope of topics associated with CCR, the determination of the exposure amount is seemingly trivial, but turns out to be highly complex due to the impact of risk mitigants, and the uncertainty involved. Canabarro and Duffie define counterparty exposure as the larger of zero and the market value of the portfolio of derivative positions with a counterparty that would be lost if the counterparty defaults and there is zero recovery. If the contract value is positive for the bank at the point of the counterparties’ default, the banks net loss equals the contract’s market value. If the contract value is negative, the bank does not gain anything but has a net loss of zero. From a regulatory point of view the Basel Committee on Banking Supervision (BCBS) aims to identify the exposure at default (EAD) which is up stake in the case of a counterparty’s default, which then has to be backed due to capital requirements. In this main section of the paper an indepth analysis on the characteristics of credit risk exposure and its quantification will be conducted. At first, the used metrics will be outlined, their characteristics described, and the risk mitigants netting and collateral considered. Last, it will be analyzed for which application the presented measures are suitable and whether they shall be calculated by riskneutral or historical data.
| Author | : Giovanni Cesari |
| Publisher | : Springer Science & Business Media |
| Total Pages | : 257 |
| Release | : 2009-12-06 |
| Genre | : Business & Economics |
| ISBN | : 3642044549 |
Download Modelling, Pricing, and Hedging Counterparty Credit Exposure Book in PDF, ePub and Kindle
It was the end of 2005 when our employer, a major European Investment Bank, gave our team the mandate to compute in an accurate way the counterparty credit exposure arising from exotic derivatives traded by the ?rm. As often happens, - posure of products such as, for example, exotic interest-rate, or credit derivatives were modelled under conservative assumptions and credit of?cers were struggling to assess the real risk. We started with a few models written on spreadsheets, t- lored to very speci?c instruments, and soon it became clear that a more systematic approach was needed. So we wrote some tools that could be used for some classes of relatively simple products. A couple of years later we are now in the process of building a system that will be used to trade and hedge counterparty credit ex- sure in an accurate way, for all types of derivative products in all asset classes. We had to overcome problems ranging from modelling in a consistent manner different products booked in different systems and building the appropriate architecture that would allow the computation and pricing of credit exposure for all types of pr- ucts, to ?nding the appropriate management structure across Business, Risk, and IT divisions of the ?rm. In this book we describe some of our experience in modelling counterparty credit exposure, computing credit valuation adjustments, determining appropriate hedges, and building a reliable system.
| Author | : Anthony Saunders |
| Publisher | : John Wiley & Sons |
| Total Pages | : 337 |
| Release | : 2002-10-06 |
| Genre | : Business & Economics |
| ISBN | : 0471274763 |
Download Credit Risk Measurement Book in PDF, ePub and Kindle
The most cutting-edge read on the pricing, modeling, and management of credit risk available The rise of credit risk measurement and the credit derivatives market started in the early 1990s and has grown ever since. For many professionals, understanding credit risk measurement as a discipline is now more important than ever. Credit Risk Measurement, Second Edition has been fully revised to reflect the latest thinking on credit risk measurement and to provide credit risk professionals with a solid understanding of the alternative approaches to credit risk measurement. This readable guide discusses the latest pricing, modeling, and management techniques available for dealing with credit risk. New chapters highlight the latest generation of credit risk measurement models, including a popular class known as intensity-based models. Credit Risk Measurement, Second Edition also analyzes significant changes in banking regulations that are impacting credit risk measurement at financial institutions. With fresh insights and updated information on the world of credit risk measurement, this book is a must-read reference for all credit risk professionals. Anthony Saunders (New York, NY) is the John M. Schiff Professor of Finance and Chair of the Department of Finance at the Stern School of Business at New York University. He holds positions on the Board of Academic Consultants of the Federal Reserve Board of Governors as well as the Council of Research Advisors for the Federal National Mortgage Association. He is the editor of the Journal of Banking and Finance and the Journal of Financial Markets, Instruments and Institutions. Linda Allen (New York, NY) is Professor of Finance at Baruch College and Adjunct Professor of Finance at the Stern School of Business at New York University. She also is author of Capital Markets and Institutions: A Global View (Wiley: 0471130494). Over the years, financial professionals around the world have looked to the Wiley Finance series and its wide array of bestselling books for the knowledge, insights, and techniques that are essential to success in financial markets. As the pace of change in financial markets and instruments quickens, Wiley Finance continues to respond. With critically acclaimed books by leading thinkers on value investing, risk management, asset allocation, and many other critical subjects, the Wiley Finance series provides the financial community with information they want. Written to provide professionals and individuals with the most current thinking from the best minds in the industry, it is no wonder that the Wiley Finance series is the first and last stop for financial professionals looking to increase their financial expertise.
| Author | : Michael S. Gibson |
| Publisher | : |
| Total Pages | : 40 |
| Release | : 2005 |
| Genre | : Derivative securities |
| ISBN | : |
Download Measuring a Counterparty Credit Exposure to a Margined Counterparty Book in PDF, ePub and Kindle
Firms active in OTC derivative markets increasingly use margin agreements to reduce counterparty credit risk. Making several simplifying assumptions, I use both a quasi- analytic approach and a simulation approach to quantify how margining reduces counterparty credit exposure. Margining reduces counterparty credit exposure by over 80 percent, using baseline parameter assumptions. I show how expected positive exposure (EPE) depends on key terms of the margin agreement and the current mark-to-market value of the portfolio of contracts with the counterparty. I also discuss a possible shortcut that could be used by firms that can model EPE without margin but cannot achieve the higher level of sophistication needed to model EPE with margin.
| Author | : Samuel Jacques Le Roux |
| Publisher | : |
| Total Pages | : |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
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The global over-the-counter derivatives market reached a staggering 14.5 trillion US dollars in gross market value at the end of December 2007. Although OTC derivatives are extremely useful and versatile in transferring risks, it appears to be a double-edged sword. For every derivative transaction concluded in the OTC market, there are two parties involved each of which is exposed to the other defaulting on the agreed terms and conditions of the contract. Counterparty credit risk is defined as the loss that will be incurred in the event that a counterparty fails to honour its financial obligations. This dissertation provides an overview of counterparty credit risk measurement from a theoretical point of view and puts an emphasis on the demonstration of the current solutions used in practice to address this problem. The author applies a bottom up approach to the problem by defining counterparty credit risk exposure on a contract (single-trade) level and expands this definition on a step-by-step basis to incorporate portfolio effects, such as correlation among underlying market variables as well as credit risk mitigation techniques, such as netting and collateral agreements, in measuring counterparty credit risk exposure on a counterparty level. The author also discusses related concepts which impact counterparty credit risk such as wrong-way risk and proposes an enhancement to the framework introduced by Finger (2000) for incorporating wrong-way risk into existing measures of counterparty credit risk exposure. Finger's framework is enhanced by the introduction of a structural model approach which can be used in establishing a functional and intuitive relationship between the probability of default of the counterparty and the underlying market variable to the derivative contract under consideration. This approach is also applied to a typical South African situation through the use of Monte Carlo simulation. The topic of counterparty credit risk modelling is a very relevant topic in modern finance, especially since the advent of Basel 2 which this dissertation also touches on in terms of the applications of counterparty credit risk modelling and how this relates to the minimum regulatory capital requirements set by bank regulators. Copyright.
| Author | : Damiano Brigo |
| Publisher | : John Wiley & Sons |
| Total Pages | : 469 |
| Release | : 2013-04-22 |
| Genre | : Business & Economics |
| ISBN | : 047074846X |
Download Counterparty Credit Risk, Collateral and Funding Book in PDF, ePub and Kindle
The book's content is focused on rigorous and advanced quantitative methods for the pricing and hedging of counterparty credit and funding risk. The new general theory that is required for this methodology is developed from scratch, leading to a consistent and comprehensive framework for counterparty credit and funding risk, inclusive of collateral, netting rules, possible debit valuation adjustments, re-hypothecation and closeout rules. The book however also looks at quite practical problems, linking particular models to particular 'concrete' financial situations across asset classes, including interest rates, FX, commodities, equity, credit itself, and the emerging asset class of longevity. The authors also aim to help quantitative analysts, traders, and anyone else needing to frame and price counterparty credit and funding risk, to develop a 'feel' for applying sophisticated mathematics and stochastic calculus to solve practical problems. The main models are illustrated from theoretical formulation to final implementation with calibration to market data, always keeping in mind the concrete questions being dealt with. The authors stress that each model is suited to different situations and products, pointing out that there does not exist a single model which is uniformly better than all the others, although the problems originated by counterparty credit and funding risk point in the direction of global valuation. Finally, proposals for restructuring counterparty credit risk, ranging from contingent credit default swaps to margin lending, are considered.
| Author | : Eduardo Canabarro |
| Publisher | : |
| Total Pages | : 356 |
| Release | : 2009 |
| Genre | : Derivative securities |
| ISBN | : 9781906348342 |
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This book is a collection of cutting-edge reflections and ideas on methods and practices used to measure, price and manage OTC derivative counterparty risk.
| Author | : Steven H. Zhu |
| Publisher | : |
| Total Pages | : 7 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
Download A Guide to Modeling Counterparty Credit Risk Book in PDF, ePub and Kindle
Michael Pykhtin and Steven Zhu offer a blueprint for modelling credit exposure and pricing counter-party risk. They focus on two main issues: modelling credit exposure and pricing counter-party risk. In the part devoted to credit exposure, we will define credit exposure at contract and counter-party levels, introduce netting and margin agreements as risk management tools for reducing counter-party-level exposure and present a framework for modelling credit exposure. In the part devoted to pricing, we will define credit value adjustment (CVA) as the price of counter-party credit risk and discuss approaches to its calculation.
| Author | : Jon Gregory |
| Publisher | : John Wiley & Sons |
| Total Pages | : 427 |
| Release | : 2012-09-07 |
| Genre | : Business & Economics |
| ISBN | : 1118316665 |
Download Counterparty Credit Risk and Credit Value Adjustment Book in PDF, ePub and Kindle
A practical guide to counterparty risk management and credit value adjustment from a leading credit practitioner Please note that this second edition of Counterparty Credit Risk and Credit Value Adjustment has now been superseded by an updated version entitled The XVA Challenge: Counterparty Credit Risk, Funding, Collateral and Capital. Since the collapse of Lehman Brothers and the resultant realization of extensive counterparty risk across the global financial markets, the subject of counterparty risk has become an unavoidable issue for every financial institution. This book explains the emergence of counterparty risk and how financial institutions are developing capabilities for valuing it. It also covers portfolio management and hedging of credit value adjustment, debit value adjustment, and wrong-way counterparty risks. In addition, the book addresses the design and benefits of central clearing, a recent development in attempts to control the rapid growth of counterparty risk. This uniquely practical resource serves as an invaluable guide for market practitioners, policy makers, academics, and students.
| Author | : Jon Gregory |
| Publisher | : John Wiley & Sons |
| Total Pages | : 449 |
| Release | : 2010-01-26 |
| Genre | : Business & Economics |
| ISBN | : 047068576X |
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The first decade of the 21st Century has been disastrous for financial institutions, derivatives and risk management. Counterparty credit risk has become the key element of financial risk management, highlighted by the bankruptcy of the investment bank Lehman Brothers and failure of other high profile institutions such as Bear Sterns, AIG, Fannie Mae and Freddie Mac. The sudden realisation of extensive counterparty risks has severely compromised the health of global financial markets. Counterparty risk is now a key problem for all financial institutions. This book explains the emergence of counterparty risk during the recent credit crisis. The quantification of firm-wide credit exposure for trading desks and businesses is discussed alongside risk mitigation methods such as netting and collateral management (margining). Banks and other financial institutions have been recently developing their capabilities for pricing counterparty risk and these elements are considered in detail via a characterisation of credit value adjustment (CVA). The implications of an institution valuing their own default via debt value adjustment (DVA) are also considered at length. Hedging aspects, together with the associated instruments such as credit defaults swaps (CDSs) and contingent CDS (CCDS) are described in full. A key feature of the credit crisis has been the realisation of wrong-way risks illustrated by the failure of monoline insurance companies. Wrong-way counterparty risks are addressed in detail in relation to interest rate, foreign exchange, commodity and, in particular, credit derivative products. Portfolio counterparty risk is covered, together with the regulatory aspects as defined by the Basel II capital requirements. The management of counterparty risk within an institution is also discussed in detail. Finally, the design and benefits of central clearing, a recent development to attempt to control the rapid growth of counterparty risk, is considered. This book is unique in being practically focused but also covering the more technical aspects. It is an invaluable complete reference guide for any market practitioner with any responsibility or interest within the area of counterparty credit risk.
