The utility of Potential Future Exposure (PFE) for counterparty trading limits is being challenged by new market developments, notably widespread regulatory Initial Margin (using 99% 10-day exposure), and netting of trade and collateral flows. However PFE has pre-existing challenges w.r.t....

Regulators set capital levels to ensure that banks are "sufficiently resilient to withstand losses in times of stress''. Climate change is caused by greenhouse gas emissions, and governments have introduced over seventy carbon pricing instruments (CPIs). Banks finance a significant fraction of...

The full-text version of this paper can be found at: "https://ssrn.com/abstract=3329538" https://ssrn.com/abstract=3329538. SA-CCR has major issues including: lack of self-consistency for linear trades; lack of appropriate risk sensitivity (zero positions can have material add-ons; moneyness is...

We propose revising SA-CCR to RSA-CCR by making SA-CCR self-consistent and appropriately risk-sensitive by cashflow decomposition in a 3-Factor Gaussian Market Model.The technical appendix to this paper can be found at: "https://ssrn.com/abstract=3329545"...

Potential Future Exposure (PFE) is a standard risk metric for managing business unit counterparty credit risk but there is debate on how it should be calculated. The debate has been whether to use one of many historical ("physical") measures (one per calibration setup), or one of many...

We introduce the Carbon Equivalence Principle that requires carbon-equivalent flows enabled, or caused, by a financial product to have equal status with cashflows. This reveals that existing financial products already have environmental impact and so are ESG-linked, without the need for any...

We introduce Climate Change Valuation Adjustment (CCVA) to capture climate change impacts on CVA+FVA that are currently invisible assuming typical market practice. To discuss such impacts on CVA+FVA from changes to instantaneous hazard rates we introduce a flexible and expressive...

We develop quantitative methods to support financial product analysis-redesign required by the Carbon Equivalence Principle (CEP) to achieve financial net-zero and thus carbon net-negative positions. We then apply the CEP analysis-redesign to project finance for power generation across a range...

Banks representing 40% of global banking assets are members of the Net-Zero Banking Alliance (NZBA) who commit to net-zero carbon in their portfolio impacts by roughly 2050. Here we present methods for steering their derivative portfolios based on the mitigation cost (benefit) of CO2-equivalent...

The impact of climate events on the economic and financial systems is of particular interest as societies navigate the transition towards a net-zero state (dealing with both physical and transition risk). Agent based models are a powerful modelling technique that can be used to model these...