A Gentle Introduction to Default Risk and Counterparty Credit Modelling
57 Pages Posted: 1 Aug 2016
Date Written: July 30, 2016
In this paper we introduce the reader to the basic tools for the computation of Counterparty Credit Risk such as Credit Value Adjustment and Debt Value Adjustment. We also present the effect of mitigating clauses, like netting and collateral, in reducing the credit exposure. Detailed numerical examples are presented with reference to commodity derivatives.
Keywords: Credit Value Adjustment, Debt Value Adjustment, Netting Collateral, Default Risk, Probability of Default
JEL Classification: C15, C63, C65, G13
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