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Saturday, April 9, 2011

A component view of Counterparty Risk

Credit and counterparty risk is the risk theme for Singapore this coming week, with two major events running in the city that cover this unique risk discipline in "technicality".

Event 1 - Marcus Evans
The first program is the Marcus Evans Counterparty Risk and CVA conference which aims to address the following topics:

[1] Assess Basel III for strengthening Counterparty Risk management
[2] Effectively calculate CVA to accurately price Counterparty Risk
[3] Measure & Model Counterparty Risk Exposure
[4] How to use enterprise wide collateral management for mitigating Counterparty Risk Managing your liquidity to offset Counterparty Risk

Event 2 Risk Management Association
The second event is being run by the RMA Singapore Chapter and will deal with the impacts of Basel III for the Counterparty Risk function of a bank.
Basel III has a specific focus on the credit and counterparty risk areas within in a bank. In this lunchtime speech we are going to specifically review what activities need to be engaged to meet Basel III compliance.
Martin Davies | Causal Capital
The Causal Capital team will be attending both these events and the presentations we deliver will be made available on this blog.

Counterparty Risk - A Component View
The assigned topic for this presentation is "how to measure counterparty risk", loosely defined as; The risk that a counterparty will not settle its contractual obligations with the bank that has solid it a derivative.

The measurement of couterparty risk is actually carried out by many business units in a bank, not just one, and each unit is working hand-in-hand across the entire risk function to create a final aggregated position of potential derivative exposure.

In this presentation we look at how to calculate the core measure of risk for Counterparty Risk and we will explain how the Potential Future Exposure (PFE) metric works for various derivative instruments the bank may trade.

Figure 1 : Counterparty Risk System Components [Click to enlarge]

The Marcus Evans conference should be an exciting, insightful event and our presentation can be downloaded from this [LINK].

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