Technical papers/Credit Risk
Conversion of upfront CVA into running CVA
Original headline:
The credit value adjustment that crystallises counterparty risk in a derivatives price is generally thought of as an upfront payment, but could equally well be converted into a running premium in appropriate...
Original headline:
A debate over whether to include counterparty risk adjustments at the point of default is animating quants, but either of the obvious answers could exacerbate systemic risk. Laurie Carver introduces this...
Original headline:
With derivatives counterparty risk rocketing up the agenda this year, researchers have tried to shed some light on the associated challenges - from capital calculation to pricing - as the annual round-up...
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More Technical papers/Credit Risk articles
Close-out convention tensions
Original headline:
There is an ambiguity in the market about the convention for valuing a derivative’s close-out value to be settled at default – in particular whether or not to include adjustments for the credit risk of the surviving party. Damiano Brigo and Massimo...
Cutting Edge introduction: the DVA debate
Original headline:
Banks profiting from a widening of their own credit spreads is causing more scrutiny of the debit value adjustment, with some viewing it as an accounting trick and others arguing it is a fact of life, however counter-intuitive it might seem. Laurie Carver...
Getting CVA up and running
Original headline:
The credit value adjustment that crystallises counterparty risk in a derivatives price is generally thought of as an upfront payment, but could equally well be converted into a running premium in appropriate products. But the obvious ways to do this lead...
Perverse capital
Original headline:
Many banks adjust the value of trades to reflect the possibility of their own default, with the counter-intuitive effect that a rise in their credit spread appears as a profit. Basel refuses to recognise this in bank capital rules, but there is a split...
Counterparty risk capital and CVA
Original headline:
Basel III has incorporated credit valuation adjustment (CVA) in calculations of regulatory capital for counterparty credit risk (CCR). CVA appears via a completely new CVA capital charge and a downward adjustment of exposure-at-default. In this article,...
Real-time counterparty credit risk management in Monte Carlo
Original headline:
Adjoint algorithmic differentiation can be used to implement the calculation of counterparty credit risk efficiently. Luca Capriotti, Jacky Lee and Matthew Peacock demonstrate how this powerful technique can be used to reduce the computational cost by...
Capturing credit correlation between counterparty and underlying
Original headline:
Kirk Buckley, Sascha Wilkens and Vladimir Chorniy present a semi-analytical approach for calculating the counterparty exposure of credit derivatives contracts conditional on the default of the counterparty, based on a Merton-type asset return model. The...
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