Download Counterparty Credit Risk by Eduardo Canabarro PDF

By Eduardo Canabarro

This booklet is a suite of analyses of tools and practices used to control OTC by-product counterparty hazard and their functionality in the course of the 2007-8 monetary problem. It covers the components of counterparty probability dimension, pricing (CVA), hedging, collateralization, tension checking out, again trying out and integration into monetary capital frameworks. a number of new rules, instructions and types are mentioned via a bunch of professional specialists. The content material of the ebook is much more suitable in mild of the new proposals of the Basel Committee of Banking Supervision for the adjustments within the regulatory capital on counterparty hazards. The e-book contains 14 chapters damaged down into 4 huge parts: · Chapters 1 to five conceal subject matters with regards to counterparty chance dimension and administration. It specializes in very present matters: systemic counterparty danger and collateralization. · Chapters 6 to ten disguise issues relating to the pricing and hedging of counterparty dangers and of collateral preparations. CVAs have prompted sizeable losses to banks through the contemporary situation and feature stimulated a number of the contemporary the Basel Committee's proposals for reforms of the regulatory capital on counterparty dangers. the consequences of collateral to OTC by-product valuation, investment expenditures and availability of investment are very important present matters which are coated. · Chapters eleven and 12 hide pressure checking out of counterparty hazards. the hot event made transparent that pressure assessments frameworks have to be increased and better and a few new and promising principles are defined. · Chapters thirteen and 14 disguise back-testing of counterparty publicity types and the incorporation of counterparty hazards into monetary and regulatory capital frameworks.

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It evaluates the entire portfolio and compares the portfolio MTM value to counterparty B’s threshold and the amount of cash-equivalent collateral counterparty B has already posted to counterparty A. If the portfolio value is below the threshold, counterparty A should return any collateral that it holds to counterparty B, subject to the MTA. If the portfolio value is above the threshold, the collateral amount required by counterparty A is equal to the difference between the portfolio value and the threshold.

Given that exposure is simulated over a long term (eg, 30 years), while typical values of dt are rather small (eg, two weeks), the total number of simulation time points would be prohibitively large. 3), which states C(t) = max{V(t) – Hcpt, 0}. indd 29 19/03/2010 17:10 counterparty credit risk The dependence of collateral on the portfolio MTM value is indeed exactly the same as in the naïve model. The only difference between the expressions is that portfolio value now is measured at an earlier time point.

Indd 5 19/03/2010 17:10 counterparty credit risk entity involved in continuous trading with many counterparties. It is not difficult to protect a firm from excessive CCR losses due to a large move of a single market factor or the default of a single counterparty. The large unexpected losses that concern CCR managers are more likely to result from correlations among market factors and credit default spread increases of several counterparties, either because all are exposed to the same risks, or because the counterparties have mutual liabilities and drag each other down.

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