Advertisement

Counterparty Risk Aggregation and Risk Mitigation

  • Giovanni CesariEmail author
  • John Aquilina
  • Niels Charpillon
  • Zlatko Filipović
  • Gordon Lee
  • Ion Manda
Chapter
Part of the Springer Finance book series (FINANCE)

Abstract

In the previous chapters we have considered credit exposure of single transactions. We examine now how to aggregate these exposures at counterparty level and then how to control and manage the risk from a portfolio perspective. This is where the real challenge starts and where it becomes clear why a robust modelling framework is necessary. To obtain a portfolio view it is necessary in fact to calibrate models and to compute products of different nature in a consistent way. In a classical Monte Carlo framework, where exposure is computed in two distinct steps, i.e. first by generating scenarios and then by pricing (using analytical pricers or suitable approximations), this commonality is achieved by using the same consistent scenarios across products. In our framework where scenario generation and pricing are linked together, the scenario consistency is embedded in the underlying pricing model. The hybrid product we need to value taking into account all stochastic drivers in a consistent way, is the given portfolio of transactions.

Keywords

Risk Measure Credit Risk Credit Default Swap Risk Mitigation Expect Shortfall 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Copyright information

© Springer-Verlag Berlin Heidelberg 2009

Authors and Affiliations

  • Giovanni Cesari
    • 1
    Email author
  • John Aquilina
    • 1
  • Niels Charpillon
    • 1
  • Zlatko Filipović
    • 1
  • Gordon Lee
    • 1
  • Ion Manda
    • 1
  1. 1.UBS AGLondonUK

Personalised recommendations