Abstract: This chapter focuses on counterparty credit risk, which is often known as counterparty risk, and is typically defined as arising from over-the-counter (OTC) derivatives and securities financial transactions. Counterparty risk is chiefly associated with pre-settlement risk, which is the risk of default of the counterparty prior to expiration of the contract. Counterparty risk represents a combination of market risk, which defines the exposure and credit risk that defines the counterparty credit quality. It is important to note that control of counterparty risk has traditionally been the purpose of credit limits, used by most banks for well over a decade. Counterparty risk can be diversified by limiting exposure to any given counterparty, broadly in line with the perceived default probability of that counterparty. It is the basic principle of credit limits. Credit value adjustment (CVA) and credit limits are typically used together as complementary ways to quantify and manage counterparty risk.
Publication Year: 2015
Publication Date: 2015-09-11
Language: en
Type: other
Indexed In: ['crossref']
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Cited By Count: 2
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