A Gentle Introduction to Default Risk and Counterparty Credit Modelling

57 Pages Posted: 1 Aug 2016

See all articles by Laura Ballotta

Laura Ballotta

Sir John Cass Business School - City, University of London

Gianluca Fusai

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa; Sir John Cass Business School - City, University of London

Marina Marena

University of Eastern Piedmont

Date Written: July 30, 2016

Abstract

In this paper we introduce the reader to the basic tools for the computation of Counterparty Credit Risk such as Credit Value Adjustment and Debt Value Adjustment. We also present the effect of mitigating clauses, like netting and collateral, in reducing the credit exposure. Detailed numerical examples are presented with reference to commodity derivatives.

Keywords: Credit Value Adjustment, Debt Value Adjustment, Netting Collateral, Default Risk, Probability of Default

JEL Classification: C15, C63, C65, G13

Suggested Citation

Ballotta, Laura and Fusai, Gianluca and Marena, Marina, A Gentle Introduction to Default Risk and Counterparty Credit Modelling (July 30, 2016). Available at SSRN: https://ssrn.com/abstract=2816355 or http://dx.doi.org/10.2139/ssrn.2816355

Laura Ballotta

Sir John Cass Business School - City, University of London ( email )

Faculty of Finance
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

HOME PAGE: http://www.city.ac.uk/people/academics/laura-ballotta

Gianluca Fusai (Contact Author)

Università del Piemonte Orientale Dipartimento di Studi per l'Economia e l'Impresa ( email )

Via Perrone, 18
Novara, 28100
Italy

HOME PAGE: http://https://upobook.uniupo.it/gianluca.fusai

Sir John Cass Business School - City, University of London ( email )

106 Bunhill Row
London, EC2Y 8HB
Great Britain

HOME PAGE: http:// www.cass.city.ac.uk/experts/G.Fusai

Marina Marena

University of Eastern Piedmont ( email )

Corso Borsalino 50
Department of Economics and Quantitative Methods
15100 Alessandria
Italy
+39 011 6706275 (Phone)

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