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CRMM-13-quantifying-counterparty-credit-exposure-1.html
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<!doctype html>
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<title>Credit Risk Measurement and Management | Chapter 13 | Quantifying Counterparty Credit Exposure, 1</title>
<meta name="description" content="Financial Risk Manager Part 2 Study Materials">
<meta name="author" content="MacLane Wilkison">
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<h1>Chapter 13</h1>
<h3>Quantifying Counterparty Credit Exposure, 1</h3>
<p>
<small>Created for <a href="http://alchemistsacademy.com">Alchemists Academy</a> by <a href="http://alchemistsacademy.com/about">MacLane Wilkison</a></small>
</p>
</section>
<section>
<h2>Quantifying Credit Exposure</h2>
<ul>
<li>Mark-to-market + add-ons</li>
<li>Semi-analytical methods</li>
<li>Monte Carlo simulation</li>
<ol>
<li>Select factors</li>
<li>Generate scenarios</li>
<li>Revalue individual positions</li>
<li>Aggregate exposures for each netting set</li>
<li>Account for effects of collateral</li>
<li>Extract desired metrics</li>
</ol>
</ul>
<aside class="notes">
MtM + add-ons approximates the future exposure by taking the current exposure and adding a component that represents the uncertainty of the PFE in the future. Semi-analytical models requires making an assumption regarding the risk factor(s) driving the exposure, finding the distribution of the exposure as defined by said risk factor(s), and calculating a semi-analytical approximation to a risk metric for that distribution</li>
</aside>
</section>
<section>
<h2>Modelling Netting</h2>
<ul>
<li>Netting must be incorporated before calculating quantities such as EE</li>
<li>Netting factor = EPE (netting) / EPE (no netting)</li>
</ul>
</section>
<section>
<h1>THE END</h1>
<h3><a href="http://alchemistsacademy.com">AlchemistsAcademy.com</a></h3>
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