A clearing member of a Central Counterparty (CCP) is exposed to losses on their default fund and initial margin contributions. Such losses can be incurred whenever the CCP has insufficient funds to unwind the portfolio of a defaulting clearing member. This does not necessarily require the...

BSLP is a two-dimensional dynamic model of interacting portfolio-level loss and spread (more exactly, loss intensity) processes. The model is similar to the top-down HJM-like frameworks developed by Schonbucher (2005) and Sidenius-Peterbarg-Andersen (SPA) (2005), however is constructed as a...

In this article we derive a capital valuation adjustment for derivatives transactions due to market incompleteness. This is motivated by the fact that a return on equity (RoE) in excess of the riskless rate is the result of undiversifiable portfolio risk.The valuation adjustment represents the...

In this article we introduce a new framework for counterparty risk model backtesting based on Bayesian methods. This provides a conceptually sound approach for analyzing model performance which is also straightforward to implement. We show that our methodology provides important advantages over...

In this article we quantify the loss a financial institution can expect due to central counterparty (CCP) membership. Such a loss can be incurred whenever the CCP has insufficient funds to unwind the portfolio of a defaulting clearing member. This does not necessarily require the default of the...

We introduce a simple model for the credit exposure to leveraged and collateralized counter-parties. Wrong-way risk is captured by linking the counter-party default probability directly to changes in the portfolio value. This applies e.g. to leveraged firms such as hedge funds where large...