Credit pricing principles
In the wake of the financial crisis, some dealers acknowledged they were lax in pricing credit into derivatives trades, and pledged to be more attentive in future. With confidence now returning to the market, will competitive pressures overrule these good intentions? By Duncan Wood
A new respect for counterparty risk is reshaping the commercial landscape in the derivatives market. Growing numbers of banks are applying additional charges to their transactions, reflecting the cost they would bear if a counterparty collapsed while owing them money. These charges are calculated and applied differently from bank to bank, resulting in quotes that can vary by millions of dollars
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