Dangerous perfection

Risk Analysis

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For more than 10 years, I have advocated simulation-based methods for estimating counterparty credit exposure. Obviously, I was delighted when the Basel Committee on Banking Supervision authorised the use of simulation methods in the advanced approaches to calculating regulatory capital (Risk June 2005, page 71). For any such initiative, however, implementation details are crucial. It is here that the Committee must proceed carefully to avoid snatching defeat from the jaws of victory.

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