Counterparty credit risk and credit value adjustment a continuing challenge for global financial markets second edition by Jon Gregory ISBN 978-1118316672 1118316673

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Product details: 

ISBN 10: 1118316673

ISBN 13:  978-1118316672

Author:  Jon Gregory

A practical guide to counterparty risk management and credit value adjustment from a leading credit practitioner Since the collapse of Lehman Brothers and the resultant realization of extensive counterparty risk across the global financial markets, the subject of counterparty risk has become an unavoidable issue for every financial institution. This book explains the emergence of counterparty risk and how financial institutions are developing capabilities for valuing it. It also covers portfolio management and hedging of credit value adjustment, debit value adjustment, and wrong-way counterparty risks. In addition, the book addresses the design and benefits of central clearing, a recent development in attempts to control the rapid growth of counterparty risk. This uniquely practical resource serves as an invaluable guide for market practitioners, policy makers, academics, and students.

Table of contents: 

SECTION I. INTRODUCTION

1. Introduction

2. Background

   • 2.1 Introduction

   • 2.2 Financial risk

   • 2.3 Value-at-Risk

   • 2.4 The derivatives market

   • 2.5 Counterparty risk in context

   • 2.6 Summary

3. Defining Counterparty Credit Risk

   • 3.1 Introducing counterparty credit risk

   • 3.2 Components and terminology

   • 3.3 Control and quantification

   • 3.4 Summary

SECTION II. MITIGATION OF COUNTERPARTY CREDIT RISK

4. Netting, Compression, Resets and Termination Features

   • 4.1 Introduction

   • 4.2 Netting

   • 4.3 Termination features and trade compression

   • 4.4 Conclusion

5. Collateral

   • 5.1 Introduction

   • 5.2 Collateral terms

   • 5.3 Defining the amount of collateral

   • 5.4 The risks of collateralisation

   • 5.5 Summary

6. Default Remote Entities and the Too Big to Fail Problem

   • 6.1 Introduction

   • 6.2 Special purpose vehicles

   • 6.3 Derivative product companies

   • 6.4 Monolines and credit DPCs

   • 6.5 Central counterparties

7. Central Counterparties

   • 7.1 Centralised clearing

   • 7.2 Logistics of central clearing

   • 7.3 Analysis of the impact and benefits of CCPs

   • 7.4 Conclusions

8. Credit Exposure

   • 8.1 Credit exposure

   • 8.2 Metrics for credit exposure

   • 8.3 Factors driving credit exposure

   • 8.4 Understanding the impact of netting on exposure

   • 8.5 Credit exposure and collateral

   • 8.6 Risk-neutral or real-world?

   • 8.7 Summary

SECTION III. CREDIT VALUE ADJUSTMENT

9. Quantifying Credit Exposure

   • 9.1 Introduction

   • 9.2 Methods for quantifying credit exposure

   • 9.3 Monte Carlo methodology

   • 9.4 Models for credit exposure

   • 9.5 Netting examples

   • 9.6 Allocating exposure

   • 9.7 Exposure and collateral

   • 9.8 Summary

10. Default Probability, Credit Spreads and Credit Derivatives

• 10.1 Default probability and recovery rates

• 10.2 Credit default swaps

• 10.3 Curve mapping

• 10.4 Portfolio credit derivatives

• 10.5 Summary

11. Portfolio Counterparty Credit Risk

• 11.1 Introduction

• 11.2 Double default

• 11.3 Credit portfolio losses

• 11.4 Summary

12. Credit Value Adjustment

• 12.1 Definition of CVA

• 12.2 CVA and exposure

• 12.3 Impact of default probability and recovery

• 12.4 Pricing new trades using CVA

• 12.5 CVA with collateral

• 12.6 Summary

13. Debt Value Adjustment

• 13.1 DVA and counterparty risk

• 13.2 The DVA controversy

• 13.3 How to monetise DVA

• 13.4 Further DVA considerations

• 13.5 Summary

14. Funding and Valuation

• 14.1 Background

• 14.2 OIS discounting

• 14.3 Funding value adjustment

• 14.4 Optimisation of CVA, DVA and funding costs

• 14.5 Future trends

• 14.6 Summary

15. Wrong-Way Risk

• 15.1 Introduction

• 15.2 Overview of wrong-way risk

• 15.3 Portfolio wrong-way risk

• 15.4 Trade-level wrong-way risk

• 15.5 Wrong-way risk and credit derivatives

• 15.6 Summary

SECTION IV. MANAGING COUNTERPARTY CREDIT RISK

16. Hedging Counterparty Risk

• 16.1 Background to CVA hedging

• 16.2 Components of CVA hedging

• 16.3 Exposure hedges

• 16.4 Credit hedges

• 16.5 Cross-dependency

• 16.6 The impact of DVA and collateral

• 16.7 Summary

17. Regulation and Capital Requirements

• 17.1 Introduction

• 17.2 Basel II

• 17.3 Exposure under Basel II

• 17.4 Basel III

• 17.5 Central counterparties

• 17.6 Summary

18. Managing CVA – The “CVA Desk”

• 18.1 Introduction

• 18.2 The role of a CVA desk

• 18.3 CVA charging

• 18.4 Technology

• 18.5 Practical hedging of CVA

• 18.6 Summary

19. The Future of Counterparty Risk

• 19.1 Key components

• 19.2 Key axes of development

• 19.3 The continuing challenge for global financial markets

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