Modelling, Pricing, and Hedging Counterparty Credit Exposure: A Technical Guide (Springer Finance)
Springer | 2010-02-01 | ISBN: 3642044530 | 271 pages | PDF | 3.9 MB

内容介绍【详细目录在回帖中】
The book is divided into four parts, (I) Methodology, (II) Architecture and Im-
plementation, (III) Products, and (IV) Hedging and Managing Counterparty Risk.
n Part I we present a generic simulation framework, which can be used to com-
pute counterparty exposure for both vanilla and exotic products. We show how the
lassical Monte Carlo framework, where price distributions are computed by gen-
rating thousands of scenarios and by explicitly pricing the product at each point
n time and at each scenario, is a special case of our more general framework. The
lassical Monte Carlo approach works well only for products that can be priced in
nalytical or quasi-analytical form. It is not practical for products that cannot be
priced in closed form and require, for instance, a Monte Carlo or lattice pricing
pproach. Typical examples are products with callability features or exotic interest-
ate transactions. We show how in these cases American Monte Carlo techniques
used generally for pricing can also be applied efficiently to compute exposure, as
hey provide intermediate valuations over time and scenarios.

Part II shows how our simulation framework naturally leads to the implementa-
ion of a software architecture and the definition of a programming language that
llows the computation of both vanilla and exotic products in a scenario-consistent
way. In practice, in a large financial institution one of the main problems in building
counterparty exposure systems, is to integrate different products, booked in different
systems and priced using libraries written in different languages and with different
technologies, in order to compute portfolio exposure across different businesses.We
show that our approach leads to an architecture that can integrate other systems in a
natural way.

In Part III we consider how to compute exposure for different products.We show
how the general techniques and models described in Part I and the architecture de-
scribed in Part II can be used in practice.

Finally in Part IV things are put together. We consider how to perform risk man-
agement and risk control of counterparty exposure on a portfolio basis.We describe
different aggregation techniques and a standard set-up that uses collateral to miti-
gate exposure.We also analyse how tomodel wrong-way/right-way exposure, where
transaction price fluctuations and quality of the counterparty are correlated and we
address the problem of changing the reference probability measure after the simula-
tion has been performed. The final chapter is dedicated to pricing counterparty credit
exposure and to computing CVA and CVA sensitivities not only to credit spread, but
also to market risk factors. The whole book can be seen as a roadmap to achieve this
goal.