Modelling, Pricing, and Hedging Counterparty Credit Exposure

A Technical Guide
1. Auflage 2010
ISBN: 978-3-642-04453-3
Verlag: Springer

Buch, Englisch, 254 Seiten, HC runder Rücken kaschiert, Format (B × H): 160 mm x 241 mm, Gewicht: 582 g

Reihe: Springer Finance

The credit crisis that started in 2007, with the collapse of well-established financial institutions and the bankruptcy of many public corporations, has clearly shown the importance for any company entering the derivative business of modelling, pricing, and hedging its counterparty credit exposure.

Building an accurate representation of firm-wide credit exposure, for both risk and trading activities, is a significant challenge from the technical as well as the practical point of view. This volume can be considered as a roadmap to finding practical solutions to the problem of computing counterparty credit exposure for large books of both vanilla and exotic derivatives usually traded by large Investment Banks. It is divided into four parts, (I) Methodology, (II) Architecture and Implementation, (III) Products, and (IV) Hedging and Managing Counterparty Risk.

Starting from a generic modelling and simulation framework based on American Monte Carlo techniques, it presents a software architecture, which, with its modular design, allows the computation of credit exposure in a portfolio-aggregated and scenario-consistent way. An essential part of the design is the definition of a programming language, which allows trade representation based on dynamic modelling features. Several chapters are then devoted to the analysis of credit exposure of various products across all asset classes, namely foreign exchange, interest rate, credit derivatives, and equity. Finally it considers how to mitigate and hedge counterparty exposure. The crucial question of dynamic hedging is addressed by constructing a hybrid product, the Contingent-Credit Default Swap.This volume addresses these and other problems, as well as recent developments related to counterparty credit exposure, from a quantitative perspective. Its unique characteristic is the combination of a rigorous but simple mathematical approach with a practical view of the financial problem at hand.

Zielgruppe

Research

Autoren/Hrsg.

Cesari, Giovanni

Aquilina, John

Manda, Ion

Charpillon, Niels

Filipovic, Zlatko

Lee, Gordon

Fachgebiete

• Wirtschaftswissenschaften Finanzsektor & Finanzdienstleistungen Bankwirtschaft

Inhaltsverzeichnis

Preface.- Glossary.- Abbreviations and Notation.- Part I: Methodology.- 1.Introduction.- 2.Modelling Framework.- 3.Simulation Models.- 4.Valuation and Sensitivities.- Part II: Architecture and Implementation.- 5.Computational Framework.- 6.Implementation.- 7.Architecture.- Part III: Products.- 8.Interest Rate Products.- 9.Equity, Commodity, Inflation and FX Products.- 10.Credit Derivatives.- 11.Hybrids and Structures.- Part IV: Hedging and Managing Counterparty Risk.- 12.Counterparty Risk Aggregation and Risk Mitigation.- 13.Combining Market and Credit Risk.- 14.Pricing Counterparty Credit Risk.- Apendix: Approximations.- References.- Index.

Über Autor(innen)

Giovanni Cesari is Managing Director at UBS. He has more than 10 years' experience in modelling and pricing counterparty credit exposure. Before moving to finance, Giovanni worked for several years in particle physics and in theoretical computer science. Giovanni holds a Laurea in Electrical Engineering from the University of Trieste, a Perfezionamento in Physics from the University of Padova, and a Ph.D. from ETH, Zurich.
John Aquilina holds an M.Phil. in Statistical Science from the University of Cambridge and a Ph.D. in Mathematical Finance from the University of Bath. He has worked on modelling counterparty credit exposure at UBS since 2005.
Niels Charpillon holds a Diplôme d'Ingénieur from Ecole des Mines, an M.Sc. in Financial Mathematics from Warwick Business School, and a Licence in Economics from University of St. Etienne. He joined the counterparty exposure team at UBS in 2006.
Zlatko Filipovic started working for UBS in 2005 as a Quantitative Analyst in the counterparty exposure team. Before joining UBS, Zlatko had been working for Mako Global Derivatives, London, as a Financial Engineer. Zlatko obtained a Ph.D. in Quantitative Finance from Imperial College, London, after graduating from the Faculty of Mathematics, University of Belgrade.
Gordon Lee joined the counterparty exposure team at UBS in 2006. Prior to UBS, he was a Senior Associate in quantitative risk and performance analysis at Wilshire Associates. Gordon holds an M.A. in Mathematics from Churchill College, University of Cambridge.
Ion Manda holds a Diploma de Inginer in Software Engineering from the University of Bucharest and a M.Sc. in Financial Engineering from Birkbeck College, University of London. He has been working in the credit exposure team at UBS since 2006. Ion has about 10 years' experience as a software engineer.