Acknowledgements |
List of Spreadsheets |
List of Abbreviations |
Introduction |
Setting the Scene / 1: |
Financial risk management / 1.1: |
The failure of models / 1.2: |
The derivatives market / 1.3: |
Risks of derivatives / 1.4: |
Counterparty risk in context / 1.5: |
Defining Counterparty Credit Risk / 2: |
Introducing counterparty risk / 2.1: |
Components and terminology / 2.2: |
Controlling counterparty credit risk / 2.3: |
Quantifying counterparty risk / 2.4: |
Metrics for credit exposure / 2.5: |
Summary / 2.6: |
Characterising exposure for a normal distribution / Appendix 2.A: |
Mitigating Counterparty Credit Risk / 3: |
Default-remote entities / 3.1: |
Termination and walkaway features / 3.3: |
Netting and close-out / 3.4: |
Netting and exposure / 3.5: |
Collateral / 3.6: |
The mechanics of collateralisation / 3.7: |
Is risk mitigation always a good thing? / 3.8: |
EE of independent normal variables / 3.9: |
Quantifying Counterparty Credit Exposure, I / 4: |
Quantifying credit exposure / 4.1: |
Typical credit exposures / 4.2: |
Models for credit exposure / 4.3: |
Netting / 4.4: |
Exposure contributions / 4.5: |
Semi-analytical formula for exposure of a forward contract / 4.6: |
Computing marginal EE / Appendix 4.B: |
Quantifying Counterparty Credit Exposure, II: The Impact of Collateral / 5: |
The impact of collateral on credit exposure / 5.1: |
Modelling collateral / 5.3: |
Full collateralisation / 5.4: |
The risks of collateralisation / 5.5: |
Calculation of collateralised PFE / cash collateral5.6: |
Calculation of collateralised netted exposure with collateral value uncertainty / Appendix 5.B: |
Mathematical treatment of a collateralised exposure / Appendix 5.C: |
Overview of Credit Risk and Credit Derivatives / 6: |
Defaults, recovery rates, credit spreads and credit derivatives / 6.1: |
Credit derivatives / 6.2: |
Credit default swaps / 6.3: |
Estimating default probability / 6.4: |
Portfolio credit derivatives / 6.5: |
Defining survival and default probabilities / Appendix 6.A: |
Pricing formulas for CDSs and risky bonds / Appendix 6.B: |
Pricing of index tranches / Appendix 6.C: |
Pricing Counterparty Credit Risk, I / 7: |
Pricing counterparty risk / 7.1: |
Pricing new trades using CVA / 7.2: |
Bilateral counterparty risk / 7.3: |
Deriving the equation for credit value adjustment (CVA) / 7.4: |
Approximation to the CVA formula in the case of no wrong-way risk / Appendix 7.B: |
Approximation linking CVA formula to credit spread / Appendix 7.C: |
Specific approximations to the CVA formula for individual instruments / Appendix 7.D: |
Calculation of CVA increase in the presence of netting / Appendix 7.E: |
Deriving the equation for bilateral credit value adjustment (BCVA) / Appendix 7.F: |
Approximation linking CVA formula to credit spreads for bilateral CVA / Appendix 7.G: |
Deriving the equation for BCVA under the assumption of a bilateral walkaway clause / Appendix 7.H: |
Pricing Counterparty Credit Risk, II: Wrong-way Risk / 8: |
Wrong-way risk / 8.1: |
Measuring wrong-way risk / 8.3: |
Counterparty risk in CDSs / 8.4: |
Counterparty risk in structured credit / 8.5: |
Counterparty risk and gap risk / 8.6: |
Super senior risk / 8.7: |
Computing the EE of a typical forward exposure with correlation to a time of default / 8.8: |
Formula for a risky option / Appendix 8.B: |
Formula for pricing a CDS contract with counterparty risk / Appendix 8.C: |
Pricing of a leveraged super senior tranche / Appendix 8.D: |
Hedging Counterparty Risk / 9: |
Hedging and pricing / 9.1: |
Hedging a risky derivative position / 9.3: |
Traditional hedging of bonds, loans and repos / 9.4: |
Risk-neutral or real parameters? / 9.5: |
Components of CVA / 9.6: |
Recovery risk / 9.7: |
Static hedging / 9.8: |
Dynamic credit hedging / 9.9: |
Exposure / 9.10: |
Cross-dependency / 9.11: |
Aggregation of sensitivities / 9.12: |
Example of calculation of CVA Greeks / 9.13: |
Portfolio Models and Economic Capital / 10: |
Joint default / 10.1: |
Credit portfolio losses / 10.3: |
The impact of stochastic exposure / 10.4: |
Special cases of alpha / 10.5: |
Credit migration and mark-to-market / 10.6: |
Credit portfolio model / 10.7: |
Simple treatment of wrong-way risk / Appendix 10.B: |
Counterparty Risk, Regulation and Basel II / 11: |
The birth of Basel II / 11.1: |
Basel II Framework for fixed exposures / 11.3: |
Exposure at default and Basel II / 11.4: |
Basel II internal model method / 11.5: |
Basel II and double-default / 11.6: |
Effective remaining maturity / 11.7: |
The asset correlation and maturity adjustment formulas in the advanced IRB approach of Basel II / Appendix 11.B: |
Netting and collateral treatment under the current exposure method (CEM) of Basel II / Appendix 11.C: |
Definition of effective EPE / Appendix 11.D: |
Double-default treatment of hedged exposures in Basel II / Appendix 11.E: |
Managing Counterparty Risk in a Financial Institution / 12: |
Counterparty risk in financial institutions / 12.1: |
Insurance company or trading desk? / 12.3: |
How to calculate credit charges / 12.4: |
How to charge for counterparty risk / 12.5: |
Counterparty Risk of Default-remote Entities / 12.6: |
The triple-A counterparty / 13.1: |
The value of monolines and CDPCs / 13.2: |
Simple model for a credit insurer / 13.3: |
The valuation of credit insurer purchased protection / Appendix 13.B: |
The Role of a Central Counterparty / 14: |
Centralised clearing / 14.1: |
The viability of centralised clearing / 14.2: |
Conclusions / 14.3: |
The Future of Counterparty Risk / 15: |
A counterparty risk revolution? / 15.1: |
Controlling credit exposure / 15.2: |
Collateral management / 15.3: |
The too-big-to-fail concept / 15.4: |
Credit value adjustment (CVA) / 15.5: |
Hedging / 15.6: |
Central counterparties / 15.7: |
The overall challenge / 15.9: |
Glossary |
References |
Index |
Acknowledgements |
List of Spreadsheets |
List of Abbreviations |
Introduction |
Setting the Scene / 1: |
Financial risk management / 1.1: |