Counterparty Risk and Funding: A Tale of Two Puzzles by Stéphane Crépey,Tomasz R. Bielecki,Damiano Brigo

By Stéphane Crépey,Tomasz R. Bielecki,Damiano Brigo

Solve the DVA/FVA Overlap factor and successfully deal with Portfolio credits Risk

Counterparty chance and investment: A story of 2 Puzzles explains the right way to research probability embedded in monetary transactions among the financial institution and its counterparty. The authors offer an analytical foundation for the quantitative method of dynamic valuation, mitigation, and hedging of bilateral counterparty chance on over the counter (OTC) by-product contracts less than investment constraints. They discover credits, debt, investment, liquidity, and score valuation adjustment (CVA, DVA, FVA, LVA, and RVA) in addition to substitute price (RC), wrong-way probability, a number of investment curves, and collateral.

The first a part of the booklet assesses today’s monetary panorama, together with the present multi-curve truth of monetary markets. In mathematical yet model-free phrases, the second one half describes the entire simple parts of the pricing and hedging framework. Taking a simpler slant, the 3rd half introduces a reduced-form modeling process within which the chance of default of the 2 events in simple terms exhibits up via their default intensities. The fourth half addresses counterparty danger on credits derivatives via dynamic copula types. within the 5th half, the authors current a credits migrations version on the way to account for rating-dependent credits help annex (CSA) clauses. additionally they contact on nonlinear FVA computations in credits portfolio versions. the ultimate half covers classical instruments from stochastic research and provides a short creation to the idea of Markov copulas.

The credits concern and ongoing ecu sovereign debt problem have proven the significance of the correct overview and administration of counterparty possibility. This e-book specializes in the interplay and attainable overlap among DVA and FVA phrases. It additionally explores the really hard factor of counterparty threat in portfolio credits modeling. essentially for researchers and graduate scholars in monetary arithmetic, the ebook can be compatible for monetary quants, managers in banks, CVA desks, and participants of supervisory bodies.

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