A Guide to Modeling Counterparty Credit Risk
Steven H. Zhu
Banc of America Merrill Lynch; Morgan Stanley
Board of Governors of the Federal Reserve System
GARP Risk Review, July/August 2007
Michael Pykhtin and Steven Zhu offer a blueprint for modelling credit exposure and pricing counter-party risk. They focus on two main issues: modelling credit exposure and pricing counter-party risk. In the part devoted to credit exposure, we will define credit exposure at contract and counter-party levels, introduce netting and margin agreements as risk management tools for reducing counter-party-level exposure and present a framework for modelling credit exposure. In the part devoted to pricing, we will define credit value adjustment (CVA) as the price of counter-party credit risk and discuss approaches to its calculation.
Number of Pages in PDF File: 7
Keywords: Credit Risk, Credit Exposure, Credit Value Adjustment, Netting and Margin Agreement
Date posted: January 16, 2008 ; Last revised: March 4, 2008
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