Technical paper/Counterparty credit risk
Bridging the gap risk reloaded: modelling wrong-way risk and leverage
A model extends the counterparty risk calculation to include nonlinear and complex portfolios
Looking beyond SA-CCR
An alternative calculation of exposure at default that handles complex portfolios is presented
Mind the gap
A default intensity model reveals the risk carried by a highly leveraged counterparty
Estimating future value-at-risk from value samples, and applications to future initial margin
This paper discusses several methods to estimate fVaR or margin requirements and their expected time evolution, from simple options to more complex interest swaps.
Credit exposure under the new standardized approach for counterparty credit risk: fixing the treatment of equity options
The new standardized approach for measuring counterparty credit risk exposures (SA-CCR) will replace the existing regulatory standard methods for exposure quantification. This paper provides empirical evidence that the SA-CCR parameters are not aligned…
A sensitivity analysis of the alpha factor
In this paper, we investigate the alpha factor’s sensitivity to key model parameters under stylized portfolio assumptions in order to better understand its complex characteristics. Our analysis is based on the numerical simulation of alpha sensitivities…
One bad apple: default risk at CCPs
One clearing member's disproportionately large position increases the credit risk for all CCP members
The homotopy analysis method for derivatives pricing under wrong-way risk
Derivatives pricing is approximated with a computationally efficient homotopy-based application that accounts for WWR
The efficiency of the Anderson–Darling test with a limited sample size: an application to backtesting counterparty credit risk internal models
This paper presents a theoretical and empirical evaluation of the Anderson–Darling test when the sample size is limited.
Optimal posting of collateral with recurrent neural networks
Pierre Henry-Labordère applies neural networks to a control problem approach for managing collateral
Wrong-way risk of interest rate instruments
This paper investigates wrong-way risk effects on the pricing of counterparty credit risk for interest rate instruments.
Revisiting SA-CCR
Berrahoui, Islah and Kenyon propose an alternative to SA-CCR
Central counterparty CVA
Matthias Arnsdorf proposes a method to calculate the counterparty risk related to CCP membership
Counterparty trading limits revisited: from PFE to PFL
The potential future loss is proposed as a replacement for PFE
Evaluating the credit exposure of interest rate derivatives under the real-world measure
This paper examines the credit exposure evaluation properties of interest rate derivatives to manage counterparty credit risk, working with the real-world probability.
A copula approach to credit valuation adjustment for swaps under wrong-way risk
This paper deals with the credit valuation adjustment (CVA) of interest rate swap (IRS) contracts in the presence of an adverse dependence between the default time and interest rates: so-called wrong-way risk (WWR).
Initial margin with risky collateral
This paper explores the complication of calculating the IM amount requirement when collateral comprises risky assets in a parametric VaR framework. The authors show that the required IM amount can be calculated by solving a quadratic inequality.
Calibrating Heston for credit risk
Marco de Innocentis and Sergei Levendorskiĭ describe a faster and more accurate method for market-implied calibration of the Heston model
The double default value-of-the-firm model
This paper analyses whether the double default treatment under Basel II is appropriate to capture the asymmetric relationship between an obligor and its guarantor.
CVA and FVA with liability-side pricing
Wujiang Lou calculates CVA and FVA abiding by the law of one price
Applied risk management series: Counterparty risk exposure metrics
Carlos Blanco outlines an approach to counterparty risk using potential future exposure