October 2012
Intermediate to advanced
481 pages
16h 54m
English
book
Counterparty Credit Risk and Credit Value Adjustment: A Continuing Challenge for Global Financial Markets, 2nd Edition
by Jon Gregory
Content preview from Counterparty Credit Risk and Credit Value Adjustment: A Continuing Challenge for Global Financial Markets, 2nd Edition
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
8.4 Understanding the Impact of Netting on Exposure
We now consider in more depth the impact of netting on exposure. Since netting allows the future values of trades to offset one another, then the aggregate effect of all trades must be considered. As we shall see, there are several different aspects to contemplate before understanding the full netting impact on overall exposure with respect to a particular counterparty. In the next section, we will consider the impact of collateral on exposure. In both cases, we will describe the general points to consider before analysing netting and collateral from a more detailed and quantitative view in the next chapter.
8.4.1 The Impact of Netting on Future Exposure
We illustrate the impact of netting on exposure in Figure 8.21 with exactly opposite transactions. When there is no legal agreement to allow netting then exposures must be considered additive. This means that the positions do not offset one another. With netting allowable (and enforceable), one can add values at the netting set level before calculating the exposure and therefore the profiles shown give a zero exposure at all points in the future.
Figure 8.21 Illustration of the impact of netting on exposure.
8.4.2 Netting and the Impact of Correlation
When considering the netting benefit of two or more trades, the most obvious consideration is the correlation between the future ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Read now
Unlock full access
More than 5,000 organizations count on O’Reilly
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.Julian F.
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.Addison B.
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.Amir M.
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.