By Jon Gregory(auth.)
A useful advisor to counterparty chance administration and credits worth adjustment from a number one credits practitioner
Since the cave in of Lehman Brothers and the consequent consciousness of in depth counterparty hazard around the worldwide monetary markets, the topic of counterparty threat has turn into an unavoidable factor for each bank. This publication explains the emergence of counterparty probability and the way monetary associations are constructing functions for valuing it. It additionally covers portfolio administration and hedging of credits price adjustment, debit price adjustment, and wrong-way counterparty dangers. moreover, the publication addresses the layout and merits of crucial clearing, a contemporary improvement in makes an attempt to regulate the speedy progress of counterparty probability. This uniquely sensible source serves as a useful consultant for marketplace practitioners, coverage makers, lecturers, and students.Content:
Chapter 1 creation (pages 3–8):
Chapter 2 historical past (pages 9–20):
Chapter three Defining Counterparty credits probability (pages 21–40):
Chapter four Netting, Compression, Resets and Termination good points (pages 45–57):
Chapter five Collateral (pages 59–77):
Chapter 6 Default distant Entities and the Too colossal to Fail challenge (pages 79–96):
Chapter 7 vital Counterparties (pages 97–119):
Chapter eight credits publicity (pages 121–153):
Chapter nine Quantifying credits publicity (pages 157–195):
Chapter 10 Default likelihood, credits Spreads and credits Derivatives (pages 197–224):
Chapter eleven Portfolio Counterparty credits hazard (pages 225–240):
Chapter 12 credits worth Adjustment (pages 241–263):
Chapter thirteen Debt price Adjustment (pages 265–281):
Chapter 14 investment and Valuation (pages 283–306):
Chapter 15 Wrong?Way hazard (pages 307–338):
Chapter sixteen Hedging Counterparty danger (pages 341–369):
Chapter 17 law and Capital specifications (pages 371–402):
Chapter 18 handling CVA – The “CVA table” (pages 403–425):
Chapter 19 the way forward for Counterparty danger (pages 427–433):
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Additional resources for Counterparty Credit Risk and Credit Value Adjustment: A Continuing Challenge for Global Financial Markets, Second Edition
In Chapter 7, we will discuss the strengths and weaknesses of central counterparties in detail. The growth of the credit derivatives market has made hedging of counterparty risk a viable option. Credit derivatives products called contingent credit default swaps (CCDSs) have even been developed speciﬁcally for this purpose. Credit derivatives also create the opportunity to diversify counterparty risk by reducing counterparty exposure to the clients of a ﬁrm, taking instead exposure to other parties who may be clients only of a competitor.
18 However, policymakers and regulators seem to have accepted that this is an unavoidable consequence of global ﬁnancial markets and such 16 Through AIG Financial Products (AIGFP), a subsidiary that was able to command the strong reputation of its parent AIG. The downgrade of AIG’s bonds triggered collateral calls that the insurer was unable to make. It could be argued that even if it was possible to avoid the existence of any too big to fail counterparties, there may be counterparties in particular regions or sectors that would be so interconnected as to produce the same problem (for example, a number of small banks in a country all failing simultaneously).
1% of the total notional outstanding. 7 Indeed, in a survey of banks I carried out in 2009, “Credit value adjustment and the changing environment for pricing and managing counterparty risk”, banks were asked which asset classes they felt their counterparty risk came from. Interest rate products were indeed most signiﬁcant overall (52%), but foreign exchange (18%) and credit derivatives (21%) were signiﬁcant. com. 0% Interest rate Foreign exchange Credit default swaps Equity Commodity * This is calculated as the sum of the absolute value of gross positive and gross negative market values, corrected for double counting.