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Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity
book

Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity

by Tomasz R. Bielecki, Damiano Brigo, Frédéric Patras
February 2011
Intermediate to advanced content levelIntermediate to advanced
768 pages
22h 39m
English
Bloomberg Press
Content preview from Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity

Chapter 16

Counterparty Risk Management and Valuation

Michael Pykhtin3

Federal Reserve Board

In this chapter, we give an overview of approaches to managing counterparty credit risk (CCR) and review different aspects of modeling CCR. We define counterparty credit exposure for a stand-alone derivative contract and then extend this definition to a portfolio of contracts. We show how netting agreements reduce counterparty-level exposure and briefly describe the basic principles of simulating exposure. We introduce the concept of exposure profile and illustrate it with examples. Then we turn to collateralization and show how margin agreements can further reduce credit exposure. We formally define collateralized exposure and discuss popular approaches ...

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Publisher Resources

ISBN: 9781118003831Purchase book