Cutting Edge introduction: clarity needed on credit adjustments

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 month’s technical papers

The International Swaps and Derivatives Association has been getting some bad press recently, after its decision to take the proposed Greek debt restructuring – under which bondholders would be invited to take a 50% haircut – at face value. If the deal did not bind all bondholders, it would not be likely to trigger credit default swaps (CDSs) on Greece, Isda said. Some market participants worry that could destroy the credibility of sovereign CDSs as a product.

Strangely, even if the contracts

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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