| 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 |
