Counterparty Credit Risk Preferences:
In order to estimate counterparty credit risk it is necessary to estimate the future exposure to each counterparty, the probability of default of each counterparty and the recovery rate associated with a default. In order to estimate these factors different models will be used. This section details the parameterisation of the models to allow for an estimate of couterpart credit risk, both on a individual counterparty and at an aggregate level.
To estimate the forward path of the different assets and/or assett classes a range of models are available from simple normal drift diffusion to the more exotic Constant Elasticity of Variance (CEV) or Stochastic Volatility (SV) models. These models may be parameterised at a risk sector or at a Generic Market (GM) Level. Please note that if specification is done at a GM Level, there is a considerable amount of sepcification needed, the effort of which may not be reflected in accuracy of the final answer, given the approximations and assumptions involved in estimating counterparty credit risk.
In order to estimate counterparty credit risk it is necessary to estimate the future exposure to each counterparty, the probability of default of each counterparty and the recovery rate associated with a default. In order to estimate these factors different models will be used. This section details the parameterisation of the models to allow for an estimate of couterpart credit risk, both on a individual counterparty and at an aggregate level.
To estimate the forward path of the different assets and/or assett classes a range of models are available from simple normal drift diffusion to the more exotic Constant Elasticity of Variance (CEV) or Stochastic Volatility (SV) models. These models may be parameterised at a risk sector or at a Generic Market (GM) Level. Please note that if specification is done at a GM Level, there is a considerable amount of sepcification needed, the effort of which may not be reflected in accuracy of the final answer, given the approximations and assumptions involved in estimating counterparty credit risk.
This screen allows the user to specify general information that is required in counterparty credit risk such as horizon time for the estimation and step length (assuming a Monte Carlo simulation is used).
This screen allows the user to specifty and parameterise a model for the estimation of counterparty default probabilities. In addition, the expected recovery rate under default may be specified for each counterparty.