Counterparty credit risk (CCR) is currently one of the most complex topics for financial institutions primarily due to its multiple definitions and uses. Therefore, the first question to ask yourself before modeling CCR, is why do you want to measure it?
CCR is the risk that a party, usually to an OTC derivative contract, may fail to fulfill its obligations, causing replacement losses to the other party. This is similar to the standard definition of credit risk in the sense that the economic loss is due to the default of the obligor. Read More