This paper discusses the implications of having risk management systems built on simplified methodologies. As an example, quanto adjustments for risk factors simulation are considered. The impact on counterparty exposure and regulatory capital calculations is quantified.

This paper discusses a class of methodological issues that frequently arise in risk management systems such as PFE and CVA engines. Simplified methodology and shortcuts come at a price, sometimes a steep one. To account for model deficiencies and a disconnect between the calibration and the...