Measuring Counterparty Credit Risk in the Trading Book

Quant Talk
Wednesday, 17 March 2010
6.30 pm, room 21

No registration necessary. Just turn up and enjoy!

Abstract

Based on our experiences with several real live projects on replacement risk exposure, our talk will be held from a practitioners point of view. It reviews regulatory methods used for calculating replacement risk for OTC derivatives and reveals some shortcomings of currently widely accepted standards.

We propose a sensitivity based approach, which on the one hand is much more risk sensitive than the regulatory current exposure method. On the other hand it requires only modest implementation efforts compared to simulation approaches. We will show some explicit examples for structured equity and interest rate derivatives.