Counterparty Credit Risk, Collateral and Funding (eBook, PDF)
With Pricing Cases For All Asset Classes
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Counterparty Credit Risk, Collateral and Funding (eBook, PDF)
With Pricing Cases For All Asset Classes
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The book's content is focused on rigorous and advanced quantitative methods for the pricing and hedging of counterparty credit and funding risk. 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, re-hypothecation and closeout rules. The book however also looks at quite practical problems, linking particular models to particular 'concrete' financial situations across asset classes,…mehr
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- Produktdetails
- Verlag: John Wiley & Sons
- Seitenzahl: 464
- Erscheinungstermin: 7. März 2013
- Englisch
- ISBN-13: 9780470662496
- Artikelnr.: 37753845
- Verlag: John Wiley & Sons
- Seitenzahl: 464
- Erscheinungstermin: 7. März 2013
- Englisch
- ISBN-13: 9780470662496
- Artikelnr.: 37753845
RISK, COLLATERAL AND FUNDING 1 Introduction 3 1.1 A Dialogue on CVA 3 1.2
Risk Measurement: Credit VaR 3 1.3 Exposure, CE, PFE, EPE, EE, EAD 5 1.4
Exposure and Credit VaR 7 1.5 Interlude: P and Q 7 1.6 Basel 8 1.7 CVA and
Model Dependence 9 1.8 Input and Data Issues on CVA 10 1.9 Emerging Asset
Classes: Longevity Risk 11 1.10 CVA and Wrong Way Risk 12 1.11 Basel III:
VaR of CVA and Wrong Way Risk 13 1.12 Discrepancies in CVA Valuation: Model
Risk and Payoff Risk 14 1.13 Bilateral Counterparty Risk: CVA and DVA 15
1.14 First-to-Default in CVA and DVA 17 1.15 DVA Mark-to-Market and DVA
Hedging 18 1.16 Impact of Close-Out in CVA and DVA 19 1.17 Close-Out
Contagion 20 1.18 Collateral Modelling in CVA and DVA 21 1.19
Re-Hypothecation 22 1.20 Netting 22 1.21 Funding 23 1.22 Hedging
Counterparty Risk: CCDS 25 1.23 Restructuring Counterparty Risk: CVA-CDOs
and Margin Lending 26 2 Context 31 2.1 Definition of Default: Six Basic
Cases 31 2.2 Definition of Exposures 32 2.3 Definition of Credit Valuation
Adjustment (CVA) 35 2.4 Counterparty Risk Mitigants: Netting 37 2.5
Counterparty Risk Mitigants: Collateral 38 2.6 Funding 41 2.7 Value at Risk
(VaR) and Expected Shortfall (ES) of CVA 43 2.8 The Dilemma of Regulators
and Basel III 44 3 Modelling the Counterparty Default 47 3.1 Firm Value (or
Structural) Models 47 3.2 Firm Value Models: Hints at the Multiname Picture
64 3.3 Reduced Form (Intensity) Models 65 3.4 Intensity Models: The
Multiname Picture 78 PART II PRICING COUNTERPARTY RISK: UNILATERAL CVA 4
Unilateral CVA and Netting for Interest Rate Products 89 4.1 First Steps
towards a CVA Pricing Formula 89 4.2 The Probabilistic Framework 92 4.3 The
General Pricing Formula for Unilateral Counterparty Risk 94 4.4 Interest
Rate Swap (IRS) Portfolios 97 4.5 Numerical Tests 106 4.6 Conclusions 120 5
Wrong Way Risk (WWR) for Interest Rates 121 5.1 Modelling Assumptions 122
5.2 Numerical Methods 127 5.3 Results and Discussion 129 5.4 Contingent CDS
(CCDS) 132 5.5 Results Interpretation and Conclusions 133 6 Unilateral CVA
for Commodities with WWR 135 6.1 Oil Swaps and Counterparty Risk 135 6.2
Modelling Assumptions 137 6.3 Forward versus Futures Prices 140 6.4 Swaps
and Counterparty Risk 142 6.5 UCVA for Commodity Swaps 144 6.6 Inadequacy
of Basel's WWR Multipliers 148 6.7 Conclusions 151 7 Unilateral CVA for
Credit with WWR 153 7.1 Introduction to CDSs with Counterparty Risk 153 7.2
Modelling Assumptions 155 7.3 CDS Options Embedded in CVA Pricing 158 7.4
UCVA for Credit Default Swaps: A Case Study 160 7.5 Conclusions 164 8
Unilateral CVA for Equity with WWR 167 8.1 Counterparty Risk for Equity
Without a Full Hybrid Model 167 8.2 Counterparty Risk with a Hybrid
Credit-Equity Structural Model 172 8.3 Model Calibration and Empirical
Results 180 8.4 Counterparty Risk and Wrong Way Risk 191 9 Unilateral CVA
for FX 205 9.1 Pricing with Two Currencies: Foundations 206 9.2 Unilateral
CVA for a Fixed-Fixed CCS 210 9.3 Unilateral CVA for Cross Currency Swaps
with Floating Legs 224 9.4 Why a Cross Currency Basis? 226 9.5 CVA for CCS
in Practice 230 9.6 Novations and the Cost of Liquidity 237 9.7 Conclusions
243 PART III ADVANCED CREDIT AND FUNDING RISK PRICING 10 New Generation
Counterparty and Funding Risk Pricing 247 10.1 Introducing the Advanced
Part of the Book 247 10.2 What We Have Seen Before: Unilateral CVA 249 10.3
Unilateral Debit Valuation Adjustment (UDVA) 250 10.4 Bilateral Risk and
DVA 251 10.5 Undesirable Features of DVA 253 10.6 Close-Out: Risk-Free or
Replacement? 256 10.7 Can We Neglect the First-to-Default Time? 257 10.8
Payoff Risk 258 10.9 Collateralization, Gap Risk and Re-Hypothecation 259
10.10 Funding Costs 262 10.11 Restructuring Counterparty Risk 263 10.12
Conclusions 266 11 A First Attack on Funding Cost Modelling 269 11.1 The
Problem 269 11.2 A Closer Look at Funding and Discounting 271 11.3 The
Approach Proposed by Morini and Prampolini (2010) 272 11.4 What Next on
Funding? 278 12 Bilateral CVA-DVA and Interest Rate Products 279 12.1
Arbitrage-Free Valuation of Bilateral Counterparty Risk 281 12.2 Modelling
Assumptions 286 12.3 Numerical Methods 290 12.4 Results and Discussion 291
12.5 Conclusions 302 13 Collateral, Netting, Close-Out and Re-Hypothecation
305 13.1 Trading Under the ISDA Master Agreement 306 13.2 Bilateral CVA
Formula under Collateralization 310 13.3 Close-Out Amount Evaluation 313
13.4 Special Cases of Collateral-Inclusive Bilateral Credit Valuation
Adjustment 314 13.5 Example of Collateralization Schemes 315 13.6
Conclusions 316 14 Close-Out and Contagion with Examples of a Simple Payoff
319 14.1 Introduction to Close-Out Modelling and Earlier Work 319 14.2
Classical Unilateral and Bilateral Valuation Adjustments 322 14.3 Bilateral
Adjustment and Close-Out: Risk-Free or Replacement? 323 14.4 A Quantitative
Analysis and a Numerical Example 323 14.5 Conclusions 329 15 Bilateral
Collateralized CVA and DVA for Rates and Credit 331 15.1 CBVA for Interest
Rate Swaps 332 15.2 Modelling Credit Contagion 340 15.3 CBVA for Credit
Default Swaps 345 15.4 Conclusions 349 16 Including Margining Costs in
Collateralized Contracts 351 16.1 Trading Under the ISDA Master Agreement
352 16.2 CBVA General Formula with Margining Costs 355 16.3 Changing the
Collateralization Currency 357 Foreign-Currency Collaterals 359 16.4
Conclusions 359 17 Funding Valuation Adjustment (FVA)? 361 17.1 Dealing
with Costs of Funding 361 17.2 Collateral- and Funding-Inclusive Bilateral
Valuation Adjusted Price 366 17.3 Funding Risk and Liquidity Policies 367
17.4 CBVA Pricing Equation with Funding Costs (CFBVA) 372 17.5 Detailed
Examples 378 17.6 Conclusions: FVA and Beyond 382 18 Non-Standard Asset
Classes: Longevity Risk 385 18.1 Introduction to Longevity Markets 385 18.2
Longevity Swaps: The Payoff 391 18.3 Mark-to-Market for Longevity Swaps 394
18.4 Counterparty and Own Default Risk, Collateral and Funding 397 18.5 An
Example of Modelling Specification from Biffis et al. (2011) 401 18.6
Discussion of the Results in Biffis et al. (2011) 404 19 Conclusions and
Further Work 409 19.1 A Final Dialogue: Models, Regulations, CVA/DVA,
Funding and More 409 Bibliography 415 Index 423
RISK, COLLATERAL AND FUNDING 1 Introduction 3 1.1 A Dialogue on CVA 3 1.2
Risk Measurement: Credit VaR 3 1.3 Exposure, CE, PFE, EPE, EE, EAD 5 1.4
Exposure and Credit VaR 7 1.5 Interlude: P and Q 7 1.6 Basel 8 1.7 CVA and
Model Dependence 9 1.8 Input and Data Issues on CVA 10 1.9 Emerging Asset
Classes: Longevity Risk 11 1.10 CVA and Wrong Way Risk 12 1.11 Basel III:
VaR of CVA and Wrong Way Risk 13 1.12 Discrepancies in CVA Valuation: Model
Risk and Payoff Risk 14 1.13 Bilateral Counterparty Risk: CVA and DVA 15
1.14 First-to-Default in CVA and DVA 17 1.15 DVA Mark-to-Market and DVA
Hedging 18 1.16 Impact of Close-Out in CVA and DVA 19 1.17 Close-Out
Contagion 20 1.18 Collateral Modelling in CVA and DVA 21 1.19
Re-Hypothecation 22 1.20 Netting 22 1.21 Funding 23 1.22 Hedging
Counterparty Risk: CCDS 25 1.23 Restructuring Counterparty Risk: CVA-CDOs
and Margin Lending 26 2 Context 31 2.1 Definition of Default: Six Basic
Cases 31 2.2 Definition of Exposures 32 2.3 Definition of Credit Valuation
Adjustment (CVA) 35 2.4 Counterparty Risk Mitigants: Netting 37 2.5
Counterparty Risk Mitigants: Collateral 38 2.6 Funding 41 2.7 Value at Risk
(VaR) and Expected Shortfall (ES) of CVA 43 2.8 The Dilemma of Regulators
and Basel III 44 3 Modelling the Counterparty Default 47 3.1 Firm Value (or
Structural) Models 47 3.2 Firm Value Models: Hints at the Multiname Picture
64 3.3 Reduced Form (Intensity) Models 65 3.4 Intensity Models: The
Multiname Picture 78 PART II PRICING COUNTERPARTY RISK: UNILATERAL CVA 4
Unilateral CVA and Netting for Interest Rate Products 89 4.1 First Steps
towards a CVA Pricing Formula 89 4.2 The Probabilistic Framework 92 4.3 The
General Pricing Formula for Unilateral Counterparty Risk 94 4.4 Interest
Rate Swap (IRS) Portfolios 97 4.5 Numerical Tests 106 4.6 Conclusions 120 5
Wrong Way Risk (WWR) for Interest Rates 121 5.1 Modelling Assumptions 122
5.2 Numerical Methods 127 5.3 Results and Discussion 129 5.4 Contingent CDS
(CCDS) 132 5.5 Results Interpretation and Conclusions 133 6 Unilateral CVA
for Commodities with WWR 135 6.1 Oil Swaps and Counterparty Risk 135 6.2
Modelling Assumptions 137 6.3 Forward versus Futures Prices 140 6.4 Swaps
and Counterparty Risk 142 6.5 UCVA for Commodity Swaps 144 6.6 Inadequacy
of Basel's WWR Multipliers 148 6.7 Conclusions 151 7 Unilateral CVA for
Credit with WWR 153 7.1 Introduction to CDSs with Counterparty Risk 153 7.2
Modelling Assumptions 155 7.3 CDS Options Embedded in CVA Pricing 158 7.4
UCVA for Credit Default Swaps: A Case Study 160 7.5 Conclusions 164 8
Unilateral CVA for Equity with WWR 167 8.1 Counterparty Risk for Equity
Without a Full Hybrid Model 167 8.2 Counterparty Risk with a Hybrid
Credit-Equity Structural Model 172 8.3 Model Calibration and Empirical
Results 180 8.4 Counterparty Risk and Wrong Way Risk 191 9 Unilateral CVA
for FX 205 9.1 Pricing with Two Currencies: Foundations 206 9.2 Unilateral
CVA for a Fixed-Fixed CCS 210 9.3 Unilateral CVA for Cross Currency Swaps
with Floating Legs 224 9.4 Why a Cross Currency Basis? 226 9.5 CVA for CCS
in Practice 230 9.6 Novations and the Cost of Liquidity 237 9.7 Conclusions
243 PART III ADVANCED CREDIT AND FUNDING RISK PRICING 10 New Generation
Counterparty and Funding Risk Pricing 247 10.1 Introducing the Advanced
Part of the Book 247 10.2 What We Have Seen Before: Unilateral CVA 249 10.3
Unilateral Debit Valuation Adjustment (UDVA) 250 10.4 Bilateral Risk and
DVA 251 10.5 Undesirable Features of DVA 253 10.6 Close-Out: Risk-Free or
Replacement? 256 10.7 Can We Neglect the First-to-Default Time? 257 10.8
Payoff Risk 258 10.9 Collateralization, Gap Risk and Re-Hypothecation 259
10.10 Funding Costs 262 10.11 Restructuring Counterparty Risk 263 10.12
Conclusions 266 11 A First Attack on Funding Cost Modelling 269 11.1 The
Problem 269 11.2 A Closer Look at Funding and Discounting 271 11.3 The
Approach Proposed by Morini and Prampolini (2010) 272 11.4 What Next on
Funding? 278 12 Bilateral CVA-DVA and Interest Rate Products 279 12.1
Arbitrage-Free Valuation of Bilateral Counterparty Risk 281 12.2 Modelling
Assumptions 286 12.3 Numerical Methods 290 12.4 Results and Discussion 291
12.5 Conclusions 302 13 Collateral, Netting, Close-Out and Re-Hypothecation
305 13.1 Trading Under the ISDA Master Agreement 306 13.2 Bilateral CVA
Formula under Collateralization 310 13.3 Close-Out Amount Evaluation 313
13.4 Special Cases of Collateral-Inclusive Bilateral Credit Valuation
Adjustment 314 13.5 Example of Collateralization Schemes 315 13.6
Conclusions 316 14 Close-Out and Contagion with Examples of a Simple Payoff
319 14.1 Introduction to Close-Out Modelling and Earlier Work 319 14.2
Classical Unilateral and Bilateral Valuation Adjustments 322 14.3 Bilateral
Adjustment and Close-Out: Risk-Free or Replacement? 323 14.4 A Quantitative
Analysis and a Numerical Example 323 14.5 Conclusions 329 15 Bilateral
Collateralized CVA and DVA for Rates and Credit 331 15.1 CBVA for Interest
Rate Swaps 332 15.2 Modelling Credit Contagion 340 15.3 CBVA for Credit
Default Swaps 345 15.4 Conclusions 349 16 Including Margining Costs in
Collateralized Contracts 351 16.1 Trading Under the ISDA Master Agreement
352 16.2 CBVA General Formula with Margining Costs 355 16.3 Changing the
Collateralization Currency 357 Foreign-Currency Collaterals 359 16.4
Conclusions 359 17 Funding Valuation Adjustment (FVA)? 361 17.1 Dealing
with Costs of Funding 361 17.2 Collateral- and Funding-Inclusive Bilateral
Valuation Adjusted Price 366 17.3 Funding Risk and Liquidity Policies 367
17.4 CBVA Pricing Equation with Funding Costs (CFBVA) 372 17.5 Detailed
Examples 378 17.6 Conclusions: FVA and Beyond 382 18 Non-Standard Asset
Classes: Longevity Risk 385 18.1 Introduction to Longevity Markets 385 18.2
Longevity Swaps: The Payoff 391 18.3 Mark-to-Market for Longevity Swaps 394
18.4 Counterparty and Own Default Risk, Collateral and Funding 397 18.5 An
Example of Modelling Specification from Biffis et al. (2011) 401 18.6
Discussion of the Results in Biffis et al. (2011) 404 19 Conclusions and
Further Work 409 19.1 A Final Dialogue: Models, Regulations, CVA/DVA,
Funding and More 409 Bibliography 415 Index 423