Measuring and Managing the Credit Exposure of Derivatives Portfolios

Mark Wahrenburg Universität zu Köln 1997

24页 英文

The overwhelming majority of banks currently use the so called „percentage of notional“
and „Current Exposure + Add On’’ formulas for the measurement of credit risk in their
derivatives portfolios. However, these approaches do not deliver exposure figures that
adequately describe the counterparty risk of a specific counterparty, because they rely on
a variety of simplifying assumptions that may lead to gross over- or underestimations of
the true counterparty risk. In particular, it is unable to take account for portfolio effects
since it is based on single transaction analysis.