By Damiano Brigo

ISBN-10: 047074846X

ISBN-13: 9780470748466

The book’s content material is targeted on rigorous and complicated quantitative equipment for the pricing and hedging of counterparty credits and investment chance. the recent common concept that's required for this system is built from scratch, resulting in a constant and accomplished framework for counterparty credits and investment danger, which include collateral, netting principles, attainable debit valuation alterations, re-hypothecation and closeout ideas. The publication notwithstanding additionally seems to be at really sensible difficulties, linking specific types to specific ‘concrete’ monetary events throughout asset periods, together with rates of interest, FX, commodities, fairness, credits itself, and the rising asset category of longevity.

The authors additionally goal to aid quantitative analysts, investors, and someone else wanting to border and cost  counterparty credits and investment probability, to boost a ‘feel’ for utilizing subtle arithmetic and stochastic calculus to unravel functional problems.

The major types are illustrated from theoretical formula to ultimate implementation with calibration to marketplace facts, continually protecting in brain the concrete questions being handled. The authors pressure that every version is fitted to assorted events and items, declaring that there doesn't exist a unmarried version that is uniformly higher than all of the others, even supposing the issues originated by means of counterparty credits and investment danger aspect towards international valuation.

Finally, proposals for restructuring counterparty credits hazard, starting from contingent credits default swaps to margin lending, are considered.

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Extra info for Counterparty Credit Risk, Collateral and Funding: With Pricing Cases for All Asset Classes

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A: Ha ha, very funny. . 6 BASEL A: OK seriously . . [pulls her tablet and visualizes a PDF document, handing the tablet to her junior colleague] “Basel II” is a set of recommendations on banking regulations issued by the Basel Committee on Banking Supervision. The “II” is because this is a second set of rules, issued in 2004 and later on updated, following Basel I, the first set, issued in 1998. Basel II was introduced to create a standard that regulators could use to establish how much capital a bank needs to set aside to cover financial and operational risks connected to its lending and investing activities.

But also the statistical dependence (or “correlation”) between default of the counterparty and underlying financial variables, leading to so-called Wrong Way Risk, can be very important. Q: Wrong Way Risk? WWR? A: Yes, I am sure you have heard this before. Q: Well I am not sure about WWR, but before we go there hold on a minute, I have another question. A: [Sighing] Go ahead. 8 INPUT AND DATA ISSUES ON CVA Q: You mentioned volatilities a correlations, but are they easy to measure? A: That is both a very good and important question.

So in a sense you are double counting, because if you do as we just said, you are not really closing the deal at the first default. The correct BVA includes a first to default check. My head is spinning . . let me try to summarize. Go ahead You have to be careful with bilateral CVA. BVA is not just the difference of DVA and CVA computed each as if in a world where only one name can default. In computing DVA and CVA in the difference you need to account for both defaults of bank and corporate in both terms.

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Counterparty Credit Risk, Collateral and Funding: With Pricing Cases for All Asset Classes by Damiano Brigo

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