What is the margin period of risk?
Margin period of risk is the time period from the last exchange of collateral covering a netting set of transactions with a defaulting counterparty until that counterparty is closed out and the resulting market risk is re-hedged.
What is SA CCR in banking?
The Standardized approach for counterparty credit risk (SA-CCR) is the capital requirement framework under Basel III addressing counterparty risk. SA-CCR calculates the exposure at default of derivatives and “long-settlement transactions” exposed to counterparty credit risk.
How is PFE calculated?
PFE is a measure of counterparty risk/credit risk. It is calculated by evaluating existing trades done against the possible market prices in future during the lifetime of transactions. The calculated expected maximum exposure value is not to be confused with the maximum credit exposure possible.
What is SA CVA?
Standardized approach (SA-CVA): A sensitivity-based calculation similar to the FRTB Standardized Approach (FRTB-SA) for capitalizing market risk, requiring supervisory approval. Industry participants provided feedback that these standards had overly conservative calibrations.
What is PSE in risk?
Pre-settlement risk is the possibility that one party in a contract will fail to meet its obligations under that contract, resulting in default before the settlement date. This default by one party would prematurely end the contract and leave the other party to experience loss if they are not insured in some way.
How does SA-CCR work?
The SA-CCR calculation manages to capture the risk-reducing effect of cross-product netting. However, the segmentation into the different asset classes and hedging sets mean that the diversification benefit is more restricted than under IMM, where MtM offsets can be recognized across the entire netting set.
What is default risk?
Default risk is the risk that a lender takes on in the chance that a borrower will be unable to make the required payments on their debt obligation. Lenders and investors are exposed to default risk in virtually all forms of credit extensions.
What is DVA and CVA?
Credit Value Adjustment (CVA) is the amount subtracted from the mark-to-market (MTM) value of derivative positions to account for the expected loss due to counterparty defaults. DVA is the amount added back to the MTM value to account for the expected gain from an institution’s own default.
What is CCR and CVA?
CVA is an adjustment to the fair value (or price) of derivative instruments to account for counterparty credit risk (CCR). Thus, CVA is commonly viewed as the price of CCR. This price depends on counterparty credit spreads as well as on the market risk factors that drive derivatives’ values and, therefore, exposure.
What is PSR limit?
PSR Limits. Pre-settlement risk (PSR) is the risk that a counterparty to a transaction, such as a forward contract, will not settle his/ her end of the deal. PSR limits are based on the worst case loss that is likely to occur if the counterparty defaults prior to the settlement of a transaction.