Optimal Funding Strategies for Counterparty Credit Risk Liabilities
2011; RELX Group (Netherlands); Linguagem: Inglês
10.2139/ssrn.1844713
ISSN1556-5068
AutoresClaudio Albanese, Giacomo Pietronero, Steve White,
Tópico(s)Stochastic processes and financial applications
ResumoThe Dodd-Frank Act and the recently proposed Basel Committee regulatory framework for CCPs are a game changer for counterparty credit risk management. The practice of charging an upfront fee as a Credit Valuation Adjustment (CVA) to provision against counterparty credit risk liabilities is being abandoned as it was blamed for as much as two thirds of the losses recorded during the financial crisis. Instead, a key role will be played by margin financing, whereby periodically marked-to-market revolving lines of credit are used to cover margin variations on a cross-product basis.
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