Download This PaperA Guide to Modeling Counterparty Credit Risk
GARP Risk Review, July/August 2007
7 Pages Posted: 16 Jan 2008 Last revised: 4 Mar 2008
Abstract
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.
Keywords: Credit Risk, Credit Exposure, Credit Value Adjustment, Netting and Margin Agreement
Suggested Citation: Suggested Citation
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
100 Main Street
Cambridge, MA 02142
United States
Michael Pykhtin
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
HOME PAGE: http://www.federalreserve.gov/econresdata/michael-v-pykhtin.htm