The philosophy behind credit charging is essentially identical to the thinking behind other market mechanisms commonly used today for addressing economic, social and environmental problems once managed through regulation.
Consider schemes to control polluting emissions: simple limits on emissions of monitored polluting facilities used in the last century are slowly giving way to carbon trading schemes designed to use the market for carbon credits to foster efficient ways of reducing emissions.
So is credit risk management destined to follow the path of carbon trading? Will a market for credit risk replace credit limits? What is the role of credit departments in this future world? In this paper, Dan Travers and Jean-Marc Schwob examine the scope of credit charging in the trading book, as well as the long term business and technological implications of the increased reliance on such a charge.
More on Credit Risk
A copula-based model for wrong way risk
A new product could smoothe the gap between capital and accounting rules
The Basel Committee on Banking Supervision has introduced strict regulatory guidance on how to validate and backtest internal model methods for credit exposure. Fabrizio Anfuso, Dimitrios Karyampas ...
Adjoint algorithmic differentiation is one of the principal innovations in risk management in recent times. Luca Capriotti and Jacky Lee show how this technique can be used to compute real-time risk...
Sign up for Risk.net email alerts
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
Nominated for two technology awards
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.