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Counterparty credit risk : the new challenge for global financial markets

Jon Gregory
The first decade of the 21st Century has been disastrous forfinancial institutions, derivatives and risk management.Counterparty credit risk has become the key element of financialrisk management, highlighted by the bankruptcy of the investmentbank Lehman Brothers and failure of other high profile institutionssuch as Bear Sterns, AIG, Fannie Mae and Freddie Mac. The suddenrealisation of extensive counterparty risks has severelycompromised the health of global financial markets. Counterpartyrisk is now a key problem for all financial institutions. This book explains the emergence of counterparty risk during therecent credit crisis. The quantification of firm-wide creditexposure for trading desks and businesses is discussed alongsiderisk mitigation methods such as netting and collateral management(margining). Banks and other financial institutions have beenrecently developing their capabilities for pricing counterpartyrisk and these elements are considered in detail via acharacterisation of credit value adjustment (CVA). The implicationsof an institution valuing their own default via debt valueadjustment (DVA) are also considered at length. Hedging aspects,together with the associated instruments such as credit defaultsswaps (CDSs) and contingent CDS (CCDS) are described in full. A key feature of the credit crisis has been the realisation ofwrong-way risks illustrated by the failure of monoline insurancecompanies. Wrong-way counterparty risks are addressed in detail inrelation to interest rate, foreign exchange, commodity and, inparticular, credit derivative products. Portfolio counterparty riskis covered, together with the regulatory aspects as defined by theBasel II capital requirements. The management of counterparty riskwithin an institution is also discussed in detail. Finally, thedesign and benefits of central clearing, a recent development
Year of publication:
c2010
Authors: Gregory, Jon
Publisher: Chichester, West Sussex : Wiley
Subject: Kreditrisiko | Credit risk | Internationaler Finanzmarkt | International financial market | Welt | World
Description of contents: Table of Contents [external.dandelon.com]
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Extent:
1 Online-Ressource (xxiv, 424 Seiten)
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Type of publication: Book / Working Paper
Language: English
Notes:
Includes bibliographical references (p. 405-409) and index. - Description based on print version record
Counterparty Credit Risk: The New Challenge for Global Financial Markets; Contents; Acknowledgements; List of Spreadsheets; List of Abbreviations; Introduction; 1 Setting the Scene; 1.1 Financial risk management; 1.1.1 Market risk; 1.1.2 Liquidity risk; 1.1.3 Operational risk; 1.1.4 Credit risk; 1.1.5 Value-at-risk; 1.1.6 Disadvantages of value-at-risk; 1.2 The failure of models; 1.2.1 Why models?; 1.2.2 Good model, bad model; 1.3 The derivatives market; 1.3.1 What is a derivative?; 1.3.2 Market structure; 1.4 Risks of derivatives; 1.4.1 Too big to fail; 1.4.2 Systemic risk
1.4.3 Compensation culture1.4.4 Credit derivatives; 1.5 Counterparty risk in context; 1.5.1 What is counterparty risk?; 1.5.2 Mitigation of counterparty risk; 1.5.3 Counterparty risk and integration of risk types; 1.5.4 Counterparty risk and today's derivatives market; 2 Defining Counterparty Credit Risk; 2.1 Introducing counterparty risk; 2.1.1 Origins of counterparty risk; 2.1.2 Repos; 2.1.3 Exchange-traded derivatives; 2.1.4 OTC derivatives; 2.1.5 Counterparty risk; 2.1.6 Counterparty risk versus lending risk; 2.1.7 Mitigating counterparty risk; 2.1.8 Counterparty risk players
2.2 Components and terminology2.2.1 Credit exposure; 2.2.2 Default probability and credit migration; 2.2.3 Recovery; 2.2.4 Mark-to-market; 2.2.5 Replacement cost; 2.2.6 Exposure; 2.2.7 Exposure as a short option position; 2.2.8 Potential future exposure (PFE); 2.3 Controlling counterparty credit risk; 2.3.1 Trading with high-quality counterparties; 2.3.2 Cross-product netting; 2.3.3 Close-out; 2.3.4 Collateralisation; 2.3.5 Walkaway features; 2.3.6 Monolines; 2.3.7 Diversification of counterparty risk; 2.3.8 Exchanges and centralised clearing houses; 2.4 Quantifying counterparty risk
2.4.1 Credit lines2.4.2 Pricing counterparty risk; 2.4.3 Hedging counterparty risk; 2.4.4 Capital requirements and counterparty risk; 2.5 Metrics for credit exposure; 2.5.1 Expected MtM; 2.5.2 Expected exposure; 2.5.3 Potential future exposure; 2.5.4 EE and PFE for a normal distribution; 2.5.5 Overview of exposure metrics; 2.5.6 Expected positive exposure; 2.5.7 Effective EPE; 2.5.8 Maximum PFE; 2.6 Summary; Appendix 2.A Characterising exposure for a normal distribution; 3 Mitigating Counterparty Credit Risk; 3.1 Introduction; 3.1.1 Two-way or one-way agreements; 3.1.2 Standardisation
3.2 Default-remote entities3.2.1 High-quality counterparties; 3.2.2 Special purpose vehicles; 3.2.3 Central counterparties; 3.3 Termination and walkaway features; 3.3.1 Termination events; 3.3.2 Additional termination events; 3.3.3 Walkaway features; 3.4 Netting and close-out; 3.4.1 Close-out; 3.4.2 Payment and close-out netting; 3.4.3 The need for close-out netting; 3.4.4 The birth of netting; 3.4.5 Netting agreements; 3.4.6 The ISDA Master Agreement; 3.4.7 Product coverage; 3.4.8 Netting and exposure; 3.4.9 Advantages and disadvantages of netting; 3.4.10 Multilateral netting
3.5 Netting and exposure
ISBN: 978-1-283-23951-6 ; 1-283-23951-5 ; 978-0-470-97272-4 ; 0-470-68576-X ; 978-0-470-68576-1 ; 978-0-470-68576-1 ; 0-470-68576-X ; 1-283-23852-7
Source:
ECONIS - Online Catalogue of the ZBW
Persistent link: https://www.econbiz.de/10012678655
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