Overview

This eCourse consists of three modules on Counterparty Credit Risk (CCR). The global financial crisis focused attention on risks beyond “simple” measures of credit exposure. Among many other issues, the crisis highlighted the problem of CCR in financial markets. Counterparty credit risk is the risk of a counterparty defaulting before settlement or maturity. CVAs adjust contract values for changes in creditworthiness, while other xVAs reflect funding, collateral, and margining factors. CCR is a risk that was not fully recognised or effectively managed in the lead-up to the crisis. Further, it was not adequately covered by bank capital at the time. In light of this, Basel III strengthened the regulatory requirements in relation to CCR.

Module 1 provides a high-level overview of CCR, including its measurement for capital adequacy purposes and the tools and techniques used to manage it. Adjustments to credit valuation, as well as other valuation adjustments, are also covered in detail.

Module 2 looks at the various approaches used by banks to measure CCR, credit value adjustment (CVA), and the various other value adjustments (xVAs).  Banks must also report exposures to CCPs to manage concentration risk and meet capital requirements.

Module 3 covers risk management methods—netting, compression, collateralization, termination, hedging, and limits—used after measuring CCR exposure. It also explains how CCPs operate in today’s markets and the risks they pose. Finally, the module explores the CVA desk’s role in managing CCR, CVA, and related risks, including its use of transfer pricing to allocate costs.

Objective

On completion of this eCourse, you will be able to:
- Identify the sources of counterparty credit risk (CCR) and the factors that impact it
- Recognize the key measures of CCR exposure
- Define credit value adjustments (CVAs) and other value adjustments (xVAs)
- Identify the various tools and techniques that can be used to manage and measure CCR- Identify the crucial role played by central counterparties (CCPs) when it comes to managing CCR in the market
- Identify the key components of bank’s CCR risk management framework and the role played by CVA desks
- Identify the difference between current exposure and future exposure and calculate CCR using the various exposure measures
- Define credit value adjustment (CVA) and the various other value adjustments (xVAs)
- Identify the various approaches for calculating regulatory capital charges for CCR and CVA risk
- Recognize how tools and techniques such as netting, portfolio compression, and collateralization can be used to manage CCR
- Identify the crucial role played by central counterparties (CCPs) when it comes to managing CCR in the market
- Identify the key components of a bank’s CCR risk management framework and the role played by CVA desks

Content

Module 1: CCR, CVA, & xVAs – An Introduction
Topic 1: Overview of CCR
Topic 2: CVAs & xVAs
Topic 3: Measuring CCR
Topic 4: Managing CCR

Module 2: CCR, CVA, & xVAs – Measurement
Topic 1: CCR Exposure Measurement
Topic 2: Other Exposure Measures
Topic 3: CVA & xVAs
Topic 4: Capital Requirements

Module 3: CCR, CVA, & xVAs - Management
Topic 1: Managing & Reporting CCR
Topic 2: CCR Management Techniques
Topic 3: CCR & CCPs