Whitepapers

As a recognised thought leader, Quantifi regularly publishes whitepaper and articles that offer valuable insight and sharing of best practices on key topics related to capital markets

 

January 2016

Banks Are Not Ready for Counterparty Risk Elements of Basel lll

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by Quantifi and Ernst & Young

Quantifi, EY and PRMIA, hosted a seminar in London on ‘Managing Counterparty Risk & Basel lll’ and conducted a short survey. The findings highlighted that enhancing Counterparty Credit Risk management practices is a key focus for banks. This is in response to changes in accounting rules and new prudential and market regulations, which have tightened substantially following the financial crisis. Collectively, these changes are having a deep impact on the market and the way banks price and manage the risk associated with derivatives.

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Measurement and Management of Counterparty Risk

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by Avadhut Naik, Quantifi and Michael Bryant, InteDelta

The measurement and management of counterparty risk is a rapidly evolving area. A range of new regulatory requirements is changing the way in which institutions view risk. This affects not only risk quantification but the whole commercial model of an institution. New regulations or risk measures can affect the commercial attractiveness of an institution’s existing product range or client profile. Against a backdrop of discipline in constant evolution, this whitepaper explores some of the key areas associated with the management and measurement of counterparty risk.

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Optimising Capital Requirements for Counterparty Credit Risk

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by Rohan Douglas, Dmitry Pugachevsky (Quantifi) and
Jean-Roch Sibille, Aurelie Civilio (Risk Dynamics)

This whitepaper provides some clarity on how to deal with Counterparty Credit Risk (CCR) in the current financial environment, by detailing some of the multiple aspects and challenges involved. The paper also studies the conditions for the effective management of CCR by detailing and comparing capital requirements, identifying inconsistencies in prudential regulations and applying the various capital approaches on some typical portfolio strategies observed within financial institutions.

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Comparing Alternate Methods for Calculating CVA Capital Charges Under Basel III

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co-authored by Jon Gregory, Solum Financial Partners

The global financial crisis brought counterparty credit risk and CVA very much into the spotlight. The Basel III proposals first published in December 2009 introduced changes to the Basel II rules and the need for a new capital charge 'CVA VaR' against the volatility of CVA. There are two ways for banks to compute CVA VaR, so-called standardised and advanced methods, which depend on their current regulatory approval with respect to other aspects. Furthermore, there is the potential to reduce the capital charges via eligible hedges. This whitepaper explores the capital charges under the two regimes and the capital relief that can be achieved.

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OIS and CSA Discounting

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by Quantifi

Prior to the credit crisis, interest rate modelling was generally well understood. Following the crisis, interest rate modelling has undergone nothing short of a revolution. This whitepaper covers the new generation of interest rate modelling based on overnight index swap (OIS) discounting and integrated Credit Valuation Adjustment (CVA) and how this new framework requires a rethink of derivative modelling from first principles and presents significant challenges for existing valuation, risk management, and margining systems.

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How the Credit Crisis Has Changed Counterparty Risk Management

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by Quantifi

The credit crisis and regulatory responses have forced banks to substantially update their counterparty risk management processes. New regulations in the form of Basel III, Dodd-Frank and European Market Infrastructure Regulation (EMIR) have dramatically increased capital requirements for counterparty credit risk. In addition to implementing new regulatory requirements, banks are making significant changes to internal counterparty risk management practices. This whitepaper explores some of the key changes to internal counterparty risk management processes by tracing typical workflows within banks before and after CVA desks, and how increased clearing due to regulatory mandates, affects these workflows.

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Challenges in Implementing a Counterparty Risk Management Process

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by Quantifi

Unlike market risk, which can be effectively managed by individual trading desks or traders, counterparty risk is increasingly being priced and managed by a central CVA desk or risk control group since the exposure tends to span multiple asset classes and business lines. Moreover, aggregated counterparty exposure may be significantly impacted by collateral and cross-product netting agreements. Read about best practices in implementing a counterparty risk management framework and the data, technology and operational challenges.

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