Measuring counterparty credit exposure to a margined counterparty
By: Michael S. Gibson.
Series: Finance and economics discussion series ;; 2005-50; Finance and economics discussion series (Online) ;; 2005-50.
Publisher: Federal Reserve Board
Published: 2005
Place of publication: Washington, D.C
Language: eng
Format: Electronic resource
Description: "Firms active in OTC derivative markets increasingly use margin agreements to reduce counterparty credit risk.  Making several simplifying assumptions, I use both a quasi- analytic approach and a simulation approach to quantify how margining reduces counterparty credit exposure.  Margining reduces counterparty credit exposure by over 80 percent, using baseline parameter assumptions.  I show how expected positive exposure (EPE) depends on key terms of the margin agreement and the current mark-to-market value of the portfolio of contracts with the counterparty.  I also discuss a possible shortcut that could be used by firms that can model EPE without margin but cannot achieve the higher level of sophistication needed to model EPE with margin"--Federal Reserve Board web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 12/8/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.