Cutting Edge Analytics
The risks associated with Over-The-Counter (OTC) derivatives were a key contributing factor in the 2007/2008 global financial crisis. Since the crisis, financial institutions worldwide have increased the focus of their risk management on Counterparty Credit Risk (CCR), i.e., the risk associated with a counterparty default before the end of an OTC contract.
A CCR measure that has attracted particular attention is Credit Valuation Adjustment (CVA). Volatility of CVA and the resultant impact on Banks’ income statements was one of the features of the crisis. International regulatory frameworks (i.e. Basel III) require banks to compute CVA in order to determine their capital requirements to cover current and potential future CVA exposures. CVA is computationally complex to calculate and the models used require massive computing power. In addition, banks are striving to quickly respond to market and regulatory changes through flexible in-house software. This makes fast and maintainable software implementations essential.
This video examines the implementation of CVA algorithms. Risk trainer Justin Clarke give an introduction to CCR, explain how CVA algorithms are typically implemented, and discuss how the increasing complexity of CVA frameworks consume vast computing resources.
Video duration: 37:59