Gathering transaction and market data from potentially many trading systems, along with legal agreements and other reference data, involves significant and often underestimated data management issues. The ability to calculate credit value adjustments (CVA) and exposure metrics on the entire portfolio, incorporating all relevant risk factors, adds substantial analytical and technological challenges. Furthermore, traders and salespeople expect near real-time performance of incremental CVA pricing of new transactions. Internal counterparty risk management must also be integrated with regulatory processes.
In short, the data, technological, and operational challenges involved in implementing a counterparty risk management process can be overwhelming. This paper outlines the key challenges, starting with an overview of the main business objectives, followed by a discussion of data and technology issues, and current trends in best practices.