By Jon Gregory
ISBN-10: 1119109418
ISBN-13: 9781119109419
An in depth, expert-driven advisor to trendy significant monetary focal point The xVA problem: Counterparty credits probability, investment, Collateral, and Capital is a realistic consultant from one of many top and so much influential credits practitioners, Jon Gregory. concentrating on functional equipment, this informative consultant contains dialogue round the most modern regulatory requisites, marketplace perform, and educational considering. starting with a glance on the emergence of counterparty probability through the contemporary worldwide monetary drawback, the dialogue delves into the quantification of firm-wide credits publicity and threat mitigation tools, equivalent to netting and collateral. It additionally discusses completely the xVA phrases, particularly CVA, DVA, FVA, ColVA, and KVA and their interactions and overlaps. The dialogue of different points akin to wrong-way hazards, hedging, rigidity checking out, and xVA administration inside of a bank are coated. The wide assurance and distinct therapy of what has turn into an pressing subject makes this e-book a useful reference for any practitioner, coverage maker, or pupil. Counterparty credits danger and comparable features equivalent to investment, collateral, and capital became key concerns in recent times, now regularly characterised via the time period 'xVA'. This ebook presents functional, in-depth suggestions towards all points of xVA administration. * industry perform round counterparty credits probability and credits and debit price adjustment (CVA and DVA) * the most recent regulatory advancements together with Basel III capital standards, important clearing, and obligatory collateral standards * The impression of accounting requisites reminiscent of IFRS thirteen * fresh pondering at the functions of investment, collateral, and capital alterations (FVA, ColVA and KVA) The unexpected consciousness of intensive counterparty hazards has critically compromised the overall healthiness of world monetary markets. it is now an enormous aspect of motion for all monetary associations, that have discovered the becoming significance of constant therapy of collateral, investment, and capital along counterparty threat. The xVA problem: Counterparty credits danger, investment, Collateral, and Capital presents specialist point of view and real-world information for modern-day associations.
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Extra resources for The xVA Challenge: Counterparty Credit Risk, Funding, Collateral, and Capital
Sample text
Legal risk (defined as a particular form of operational risk by Basel II) is the risk of losses due to the assumed legal treatment not being upheld. This can be due to aspects such as incorrect documentation, counterparty fraud, mismanagement of contractual rights, or unanticipated decisions by courts. Mitigating financial risk generally gives rise to legal risk due to the mitigants being challenged in some way at a point where they come into force. Defaults are particularly problematic from this point of view, because they are relatively rare and very sensitive to the jurisdiction in question.
Since it was the new CVA capital charge that was partially driving the buying of CDS protection that in turn was apparently artificially inflating CDS prices, there was a question over the methodology (if not the amount) for the additional capital charges for counterparty risk. This led to the controversial European exemptions for CVA capital, discussed later in Chapter 8. Questions were also raised about the central clearing of large amounts of OTC derivatives and what would happen if such a CCP failed.
Source: BIS. 1). This was due to the use of OTC derivatives as customised hedging instruments and also investment vehicles. The OTC market has also seen the development of completely new products (for example, the credit default swap market increased by a factor of ten between the end of 2003 and the end of 2008). The relative popularity of OTC products arises from the ability to tailor contracts more precisely to client needs, for example, by offering a particular maturity date. Exchange-traded products, by their very nature, do not offer customisation.
The xVA Challenge: Counterparty Credit Risk, Funding, Collateral, and Capital by Jon Gregory
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