Counterparty risk capital and cva

I. Counterparty Credit Risk I.1. Description Financial institutions that are engaged in over-the-counter (OTC) securities and derivatives transactions face counterparty credit risk (CCR), which is the risk that results when a counterparty to a financial contract defaults before the contract expires.

The forthcoming Basel III revisions to the counterparty risk capital sta ndards represent a meaningful departure from the existing regime, and the introduction of CVA VaR will materially increas e the capital held against bilateral credit Aug 04, 2016 · This regulation differentiates between two types of counterparty credit risk capital charges: one for the default risk and one for the market risk (usually referred to as CVA capital charge). The default charge was first proposed by Basel II .

Counterparty Credit Risk and CVA The 2008 financial crisis and Eurozone crisis intensified scrutiny of counterparty risk and risk management practices. A significant deficiency until recently was that there was no marking to market of counterparty risk. Counterparty credit risk (CVA/DVA) In the post GFC environment, greater focus has been given to the impact of counterparty credit risk. The notion of counterparty credit risk is defined by the risk that a party to a financial contract will fail to fulfil their side of the contractual agreement. Explores the challenges and trends in counterparty risk management by tracing typical workflows within a global bank before and after CVA desks, and how increased clearing affects these workflows. ... 1. Being two-faced over counterparty credit risk (Jon Gregory) 2. Risky funding with counterparty and liquidity charges (Massimo Morini and Andrea Prampolini) 3. DVA for Assets (Chris Kenyon and Richard Kenyon) 4. Pricing CDSs’ capital relief (Chris Kenyon and Andrew Green) Section 2: The FVA Debate. 5. The FVA Debate (Jon Hull and Alan White) 6. I. Counterparty Credit Risk I.1. Description Financial institutions that are engaged in over-the-counter (OTC) securities and derivatives transactions face counterparty credit risk (CCR), which is the risk that results when a counterparty to a financial contract defaults before the contract expires. This course covers all aspects of counterparty credit risk in OTC derivatives. Detailed discussions on netting, collateral, SIMM, measuring exposure, default probabilities and regulatory capital requirements, risk intermediation and CCPs. CVA, DVA and the other credit valuation adjustments are also covered along with wrong way risk.

The forecasts of the Basel III CVA Capital Charge are time period counterparty risk metrics that provide the basis for estimating a bank’s capital requirements for counterparty credit risk produced by changes in credit spreads in future periods. Counterparty credit risk and credit value adjustment “Jon Gregory is the acknowledged global expert on counterparty credit risk.This new edition of his definitive treatment of the subject, fully updated and expanded, will remain the go-to source on counterparty risk management and valuation. EPE is used for RWA and capital CVA CVA is thecostofbuying protection on counterparty that pays the portfolio value in case of PositiveExposure(EPE), the expected value the risk neutral measure is now aconsiderablepart ofthe PnL any financial institution to be hedged Enters in VaR Counterparty credit risk and credit value adjustment “Jon Gregory is the acknowledged global expert on counterparty credit risk.This new edition of his definitive treatment of the subject, fully updated and expanded, will remain the go-to source on counterparty risk management and valuation. There has been a significant effort around the issue of counterparty credit risk and CVA (credit value adjustment) as key negative forces and catalysts during the crisis. This has led to a completely new capital charge for the volatility, or value‐at‐risk (VaR) of CVA. At a time when CVA charges themselves are driving pricing dynamics ...