Head of credit risk quantitative modelling, goldman sachs. Counterparty risk treatment of otc derivatives and securities. From market risk to counterparty credit risk models eduardo epperlein, sean paul hrabak, wei zhu and alan smillie ch. Part i 5 this space is endowed with a rightcontinuous and complete sub. By eduardo canabarro, head credit, risk quantitative modelling, goldman sachs and darrell duffie abstract the outstanding volume of otc derivatives has grown exponentially over the past 15 years. The derivatives discounting dilemma journal of investment management, vol 11, no. Counterparty credit risk edited by eduardo canabarro edited by eduardo canabarro counterparty credit risk brings together leading industry figures, regulators, academics, and.
Counterparty credit risk ccr is the risk that a counterparty in a financial contract will default prior to the expiration of the contract and will fail to make all the payments required by the. Market and counterparty credit risks risk methodologies how to calculate, interpret and apply them the risk methodologies include esmas guidelines for ucits funds in europe, which could be used to supplement the. We incorporate credit valuation adjustment cva, a marktomarket estimate of counterparty credit risk booked on a banks balance sheet, into an otherwise standard structural model of credit risk. Market and counterparty risk stress test eduardo canabarro morgan. In this model, banks optimally hedge cva by trading a credit default. With extensive experience advising ccar banks on modelling issues, jing zhang brings together a crosssection of views from those directly involved in the regulation and. Mar 22, 2010 buy counterparty credit risk by eduardo canabarro isbn. Using a onefactor conditional independence framework, they derive aformula for the ratio of epe to fixed loanequivalent exposures, showing its dependence onvarious portfolio. Counterparty risk pricing and hedging 107 6 pricing and hedging counterparty risk. Head of credit quantitative risk modeling, goldman sachs. Counterparty credit risk kindle edition by canabarro, eduardo. Derivatives and risk management made simple december. Eduardo canabarro, audrey costabile, jorge cruz lopez, michael.
Sean campbell, eduardo canabarro, michael gibson, erik heit. The volume of outstanding otc derivatives has grown exponentially over the past 15 years. We know nothing about counterparty credit risk or credit valuation. Cva and wrong way risk john hull and alan white this draft. The world leader in specialist books on risk management and the financial markets. About the author eduardo canabarro eduardo canabarro is the managing director responsible for quantitative risk management at morgan stanley. Global head of counterparty credit risk management david oman global head of quantitative risk management eduardo canabarro global equities sandeep garg global fixed income liquid products jeffrey goodman global fixed income credit products joe li european head maria turner asian head ken huang collateralized lending equity matt. Counterparty risk and counterparty choice in the credit default swap market. Pykhtin and zhu 2007 however there is debate on how it.
Measurement, pricing and hedging, edited by eduardo canabarro, risk books, 2009, 356pp. Multicurve modeling with trees john hull and alan white. Measuring and marking counterparty risk eduardo canabarro head of credit quantitative risk modeling, goldman sachs darrell duffie professor, stanford university graduate school of business introduction the volume of outstanding otc derivatives has grown exponentially over the past 15 years. The new general theory that is required for this methodology is developed from scratch, leading to a consistent and comprehensive framework for counterparty credit and funding risk, inclusive of collateral, netting rules, possible debit valuation adjustments, rehypothecation and closeout rules. Counterparty credit risk is the essential guide for practitioners, regulators, consultants, accountants, lawmakers, auditors and researchers. Potential future exposure pfe is a standard risk metric for managing business unit counterparty credit risk canabarro and duffie 2003. Reardon introduction assessment methodology evaluation of the alm model and assumptions. Eduardo canabarro and darrell duffie, measuring and marking counterparty risk, in assetliability management of financial institutions. Assetliability management of credit unions ralph e.
Ccar and beyond is the first authoritative reference guide to ccar, providing a complete introduction and analysis of the regulation from origins to implementation. Springer proceedings in mathematics and statistics. Counterparty credit risk advanced model approaches. Single counterparty credit limits the clearing house industry study 6 july 2012 single counterparty credit exposures. Measuring and marking counterparty ask by eduardo canabarro and darrell duffie eduardo canabarro editor, counterparty credit risk london. The regulation of counterparty risk in overthecounter derivatives markets, in canabarro, eduardo, michael pythkin eds. Stress testing and retail portfolios soner tunay and rosa catala citizens bank 10. We would like to thank eduardo canabarro, alex cavallo, misha dobrolioubov, ramy farha, john jordan, andy kuritzkes, daniel mikkelsen and ilya. V treatment of collateralised otc derivatives and securities financing transactions. Market and counterparty risk stress test eduardo canabarro morgan stanley 11. Gordy, and clara vega 2016087 please cite this paper as.
Such modifications would materially curtail the unnecessary rebalancing of bank portfolios and avoid the potential harmful affects to the real economy that could result from the proposed rules, while remaining consistent with the objective of effectively constraining undue. Counterparty credit risk edited by eduardo canabarro edited by eduardo canabarro counterparty credit risk brings together. Risk in overthecounter transactions and the combination of credit and market risk has been discussed in duffie and singleton 2003, the modelling of ccr is analysed in pykhtin and zhou 2006, 2007 and in canabarro 2010, while martin 2010 provides an overview of model risk in ccr systems. Asset managementhedge funds investing risk books javascript seems to be disabled in your browser. Market surveys conducted by the international swaps and derivatives association isda show notional amounts of outstanding interest rate and currency. Cva and wrong way risk john hull and alan white this. A simulation analysis of systemic counterparty risk in. Stress testing credit losses for commercial real estate loan portfolios jun chen moodys analytics 9. Counterparty credit risk ccr is the risk that a party to a derivative contract may. Avery, aaron brown, sean campbell, eduardo canabarro, audrey costabile, jorge cruz lopez, michael gibson, jon gregory, erik heit.
A practical guide for quants, traders and validators the wiley finance series. Our book examines key aspects of counterparty risk management and models during the. Counterparty risk and counterparty choice in the credit default swap market wenxin du, salil gadgil, michael b. In this paper, we propose a simulation framework to assess systemic risk in overthecounter derivatives markets. Eduardo canabarro is the managing director responsible for quantitative risk management at morgan stanley.
Current state of the art and implications for assessments of capital adequacy by the task force on internal credit risk models of the federal reserve system 145k pdf 58 pages may 1998. The measurement of exposure on derivative contracts is very important because it is used not only to set up the trading limits but also as an essential input to the banks economic and regulatory capital calculation. Download it once and read it on your kindle device, pc, phones or tablets. The new basel guideline has recommanded for a more forwardlooking. Eduardo canabarro, phd financial analyst my own business. Request pdf on jan 1, 2004, eduardo canabarro and others published. Assetliability management of financial institutions. Finance and economics discussion series divisions of. At the same time, the credit spreads of the counterparty are also likely to be high indicating a relatively high probability of default for the counterparty.
Finance and economics discussion series divisions of research. Market surveys conducted by the international swaps and derivatives association isda show notional. Measuring and marking counterparty risk request pdf. Turning into a member of forces to switch their respective bestsellers counterparty credit score rating risk and counterparty credit score rating risk modelling, editors eduardo canabarro and michael pykhtin have assembled a workforce of specialists to supply an entire and contextualized understanding of the current standing and key factors in counterparty hazard administration inside the wake. Risk contributions and unexpected losses leo tillman ed. Mar 30, 2010 counterparty credit risk by eduardo canabarro, 9781906348342, available at book depository with free delivery worldwide. Introduction to counterparty credit risk conclusions pdf mit. We would like to thank eduardo canabarro, misha dobrolioubov, ramy farha, john jordan, andy kuritzkes and daniel mikkelsen for helpful. Credit exposure is the amount a bank can potentially lose in the event that one of its counterparties default. Counterparty credit risk edited by eduardo canabarro and michael pykhtin, risk books, with alan white libor vs. Market and counterparty credit risks risk methodologies how to calculate, interpret and apply them. I was also responsible for the implementation of various components of basel 1, 2, 2. Counterparty credit risk, credit default swaps, central clearing. Counterparty credit risk is sometimes referred to as presettlement risk.
Counterparty risk and counterparty choice in the credit default. Eduardo canabarro and darrell duffie, measuring and marking counterparty risk. Buy counterparty credit risk by eduardo canabarro isbn. Measuring and marking counterparty risk eduardo canabarro and darrell duffie introduction counterparty exposures. Counterparty credit risk by eduardo canabarro, 9781906348342, available at book depository with free delivery worldwide. Counterparty risk and counterparty choice in the credit default swap market, finance and economics. Chapter 10 in counterparty credit risk edited by eduardo canabarro and michael pykhtin, risk books. View eduardo canabarro, phds profile on linkedin, the worlds largest professional community. Use features like bookmarks, note taking and highlighting while reading counterparty credit risk. Counterparty risks are bilateral ie, both parties may face exposures. Counterparty risk and counterparty choice in the credit.