Within the last decade, credit risk management of financial institutions has been subject to major changes due to the development of the credit derivatives market. In the past, financial institutions merely had the possibility to manage their credit portfolio by either approving or refusing a...

We present a dialogue on Counterparty Credit Risk touching on Credit Value at Risk (Credit VaR), Potential Future Exposure (PFE), Expected Exposure (EE), Expected Positive Exposure (EPE), Credit Valuation Adjustment (CVA), Debit Valuation Adjustment (DVA), DVA Hedging, Closeout conventions,...

A database driven multi-agent model has been developed with automated access to US bank level FDIC Call Reports which yield data on balance sheet and off balance sheet activity, respectively, in Residential Mortgage Backed Securities (RMBS) and Credit Default Swaps (CDS). The simultaneous...

The aim of this work is to straighten out some misleading discussions on the concept of Credit Valuation Adjustment (CVA) according to Basel III requirements, which is essentially a risk metric point of view, and on the concept of CVA implemented in IFRS13 accountancy standard, which is...

Profit and loss distributions of trading strategies with position limits and transactions costs are divided on industry gain and traders interest and determined for a single futures contract. Open interest and volume are expressed for a multiset of strategies with constraints. These strategies...

We consider the optimal portfolio problem of a power investor who wishes to allocate her wealth between several credit default swaps (CDSs) and a money market account. We model contagion risk among the reference entities in the portfolio using a reduced form Markovian model with interacting...

This paper justifies, in an agency context, the existence of hybrid securities appeared very recently on the organized market: the cocos (contingent convertible bonds). Like the straight debt, they make it possible to profit from tax benefits of debt. And, like stocks, they provide protection...

In this work Massimo Morini and Andrea Prampolini argue that KVA is a component of profit turned into a valuation adjustment as a by-product of regulatory constraints based on a conservative consideration of market hedges. The regulatory foundations of KVA are analyzed from RWAs to the Leverage...

The Basel II Accord requires that banks and other Authorized Deposit-taking Institutions (ADIs) communicate their daily risk forecasts to the appropriate monetary authorities at the beginning of each trading day, using one or more risk models to measure Value-at-Risk (VaR). The risk estimates of...