Collateralisation: CVA & FVA - Murex - Alexandre Bon

OTC COLLATERALIZATION, CVA AND FVA

The practical challenges of untangling

credit and funding costscredit and funding costs

Alexandre Bon

RI$KMINDS 2011

Geneva

December the 8th

Where have all the flowers gone?

� « Too big to fail » have become « too big to save »

� Massive re-regulation & changing standards

– Basel III, Dodd Frank-Emir, IFRS 13…

� Where is the risk-free asset ?

– OIS-LIBOR basis

– Multi-curve environment

– Risky sovereigns

� What about the « Law of One Price? »

Copyright ® 2011 Murex S.A.S. All rights reserved

� What about the « Law of One Price? »

– Valuation adjustments

– Close-out value vs. Profitability measure

� Evolving business models

– CCPs, CVA desks, Collateral transformation…

2

Introducing the Collateral Agreement

� A bit of terminology : Collateral, ISDA & CSA

– CSA : credit support annex

– Non-mandatory appendix to the ISDA master agreement (which enforces close-– Non-mandatory appendix to the ISDA master agreement (which enforces close-

out netting for eligible contracts)

– Defines the scope and terms of bilateral remargining agreement

– CSA is the most common (but not the sole) collateral agreement for OTC

derivatives

– Standard templates but varied implementations (differences in clauses and

jurisdictions)

� Main clauses

– Eligibility of positions to close-out netting and collateralization

– Eligibility of pledge-able assets and applicable haircuts


– Eligibility of pledge-able assets and applicable haircuts

– Remargining process : valuation, frequency, settlement, reconciliation, dispute

resolution

– Determination of the collateral balance: symmetry, thresholds, independent

amounts, minimum transfer amounts, rounding rules…

– Legal framework: pledge or title-transfer, rights of re-use & rehypothecation

– Remuneration of the collateral account (most often based on an OIS rate, but

not always!)

3

Collateral Mitigation

� Collateralization does not fully eliminate counterparty

risk but reduces it greatly.

� A collateral contract can be seen as a derivatives

contract of the portfolio value.

Collateral pay-off function :

– Risk-free value of the collateralized portfolio at the re-margining date


– Thresholds, Minimum Transfer Amount, Independent amounts, rounding

rules

– Outstanding balance

– Haircuts applicable to the collateral asset

4

CVA - Collateral Modeling

MarginingNetting NodesCounterparties

MarginingNodes

Netting NodesCounterparties

ISDA - ABC

CSA

No collateral

� Eligibility rules

� Exposures are

mapped to Netting

and Margining sets


Bank ABCGMRA GMRA

No netting No collateral

� Upon close-out the

collateral balance

is offset against

the netting node

positions

5


� Exposure at t is the difference of the Close-Out value of the portfolio

and Outstanding collateral balance

� Considering the simulation date correspond to the close-out date � Considering the simulation date correspond to the close-out date

following default one identify the previous effective re-margining date

� Common modeling options

close-outgrace perioddispute fail

previousremargining

Margin Period of Risk


Simulation date T i

Simulation date T i-1

Unsecured exposure (collateralised set)

Collateral Balance

Ti - MPR

Exposure

Threshold

6


� A path-dependent issue

� Common modeling options:

– Short-cut method– Short-cut method

– Dynamically identify the previous margining date and revalue (only) the

collateralized set’s positions by full simulation

– Analytical (portfolio volatility) approximations

– Pros/Cons



Simulation date T i


Threshold

Ti - MPR

Exposure

7

Collateralization & typical portfolio mix

� An institution’s OTC portfolio will commonly contain a mix of:

– Bilateral CSAs with 0 threshold and daily margining (cash)

– Positions cleared on CCPs : daily or intraday exchange of Variation and – Positions cleared on CCPs : daily or intraday exchange of Variation and

Initial Margin

– CSAs with asymmetric terms

• One-way with SSAs

• Over-collateralized agreements (IAs, Thresholds, IM) and security collateral (e.g.

PB agreements) : small funds and corporates

– No CSA

– Multiple “collateral sets” with a single credit entity (by products : CSA,

GMRA, OSLA, GMSLA … or entities)


� Some local variations, but the interbank market is mostly on

bilateral CSAs and daily cash margining

� Imperfect collateralization bears additional risks & and

warrants further valuation adjustments (credit and funding)

8

CVA – Collateralization Efficiency

Main collateralization risks and issues:

� Lack of standardization across CSAs

� Costs and risks of operation (bilateral & 0-threshold)� Costs and risks of operation (bilateral & 0-threshold)

� Concentration risk

� Credit dependent clauses

� Eligibility of collateral assets & haircuts

� Execution : rounding, split differences, disputes

– In practice collateral amount will never exactly match the exposure

levels

– The former are typically ignored in the model, the latter managed by


– The former are typically ignored in the model, the latter managed by

adjusting the MPR of problem counterparties (dispute history).

� Rehypothecation and re-characterization risks

� Gap Risk

– Model risk & close-out value

– JTD & Wrong way risk

9

Rehypothecation

� Rehypothecation:

– The collateral taker uses pledged assets as security for his own obligations to a third

party

� Right of re-use:� Right of re-use:

– Covers rehypothecation as well as any use of the collateral asset in line with

ownership of the property (e.g. sale, lending to a third party)

� Depending on the jurisdictions and legal phrasing, collateral

exchange can be performed under:

– A Title Transfer Arrangement (implicit re-use rights)

– A Pledged Collateral Agreement, where the rehypothecation right may be explicitely

granted (often the case with non-bank counterparties)

� Similar question with cash collateral and margin segregation


� Some remarks:

– Rehypothecation and “re-pledging chains” have played an essential part in providing

liquidity (and leverage) to the financial markets

– The GFC showed how damaging the combined effects of reduced collateral velocity

(cf. Lehman close-out) and collateral squeeze (haircuts) can be in a systemic shock.

– Not a desirable feature from a CCR mitigation point of view, but forfeiting this right

represents a funding cost.

10

Risk-free or risky close-out

� ISDA documentation not 100% clear on how we

should price the liquidation value of derivatives.should price the liquidation value of derivatives.

� Open issue for default close-out as well as

valuations for Unwinds and ATEs

� Introduces a recursive pricing issue

� Theoretical justifications for both approaches: the

need for another Valuation Adjustment

(RVA/ATEVA) ?

Practical questions:


� Practical questions:

– Pricing of DVA or funding cost in distressed markets

– Joint-default

– Going-concern collateral balance is determined based on risk-free

valuation

11

One-Way Collateral Agreements

� Sovereigns, Supranationals and Agencies (SSAs)

� Small non-bank counterparties without a collateral

management function

Part I

management function

� Potentially large exposures for the un-collateralized

party

� Bilateral CVA ~ Unilateral CVA


Exposures vs. Liabilities distributions

12

Collateral gap risk

� Instantaneous jump in exposure and counterparty default

leaving a portion of the portfolio un-collateralized

• More prevalent with imperfect CSAs

(large thresholds & MTAs, longer remargining frequencies)(large thresholds & MTAs, longer remargining frequencies)

• Credit protection bought from related entity

• Simply settlement effects (warrant special treatment?)

• Liquidity effects upon counterparty default

Copyright ® 2011 Murex S.A.S. All rights reserved 13

A Familiar Horror Story

A SME wishes to hedge away the FX risk of its

exports against the steady appreciation of its

local currency against USD:local currency against USD:

=> a right-way situation



A SME wishes to hedge away the FX risk of its

exports against the steady appreciation of its

local currency against USD:local currency against USD:

� We can sell him a strip of put options

� We make the product cheaper by limiting our

downside (KO)

� The product is very popular but the market is

highly competitive: we can make it cheaper by

buying a call option that gets activated after


an OTM barrier level (or rather two or three).

This is still right-way, right?

� Very limited downside, nice upside, covered

with collateral, in some instances back-to-

back : how bad can it get?

15




� 520 companies holding for over US$ 10b of

KIKOs

� Average hedge ratio to annual export between� Average hedge ratio to annual export between

35% and 40%

� 68 SMEs with an average hedge ratio of 194%

� Class-Action suit for mis-selling

� Déjà vu - and though, firms in HK, India,

Indonesia, Taiwan, Brazil, Mexico, Poland posted

at least $30 billion losses on FXD in 2008.


� From right-way to wrong-

way

A Familiar Horror Story: The Gremlin Trade

� Collateralization questions:

– Did CVA desks spot these CCR way

– Trade size vs. turnover : an

extremely large exposure will

trigger a default

– Crowded trade

� Credit risk

– Counterparty risk

– Did CVA desks spot these CCR concentrations?

– Many of those contracts were collateralized on favorable terms to the banks, but with large remargining periods and with KRW bonds.

– Incidentally, an interesting stress-test case for regional CCPs and aspiring clearing


– Assimilation / Model risk

– Reputation risk

– Legal risk

– Systemic risk

CCPs and aspiring clearing brokers (cf. IM calculation methods)

� Some practical IT fixes

18

From Credit to Funding

Calibration

DiscountingCredit risk


Valuation

19

Funding un-collateralized trades

� In any derivatives contract future cash-flow exchanges need to

be “funded”.

� A bilateral position with an open negative MtM can be seen as an

overnight loan granted by the counterparty : logically this funding

benefit is financed at our cost of funds.

� A positive MtM represents a funding cost : by unwinding the trade

and investing this amount with my treasury (or buying back my

own bond issue) I could get the same rate.


� Hence an uncollateralized transaction’s Cash Flows should be

discounted at my senior unsecured cost of debt.

� Neglecting the CDS-Bond basis, my senior unsecured cost of funds

is in line with the assumptions PDs and Recovery of the CVA

calculation. Hence at a single contract level (i.e. single deal or

netting set): DVA = Funding Benefit.

20

Funding cost: the (non-)effect of netting

� 2 parties A & B have two exactly offsetting trades but no

netting agreements between them:

– Both parties will have non-zero CVA & DVA terms (and bilateral CVA)

� In practice whether a set of

transactions is covered by a

close-out netting provision

(ISDA) or not, has no implication

on their funding cost (and thus

the discounting curve to be used)

– Both parties will have non-zero CVA & DVA terms (and bilateral CVA)

– They both have 0 funding cost as CFs will offset.


� For non-fully netted portfolios the

Funding Benefit is not equal to

DVA!

– No close-out netting agreement

– Multiple netting sets

21

Funding collateralized trades

� If a CSA is in place, the “lender” typically receives a collateral

for a value ~ equal to the MtM of the position, either as:for a value ~ equal to the MtM of the position, either as:

– a Cash amount, which can be re-invested (overnight) and on which a pre-

specified interest is paid back to the poster (typically compounded OIS

index).

– a Security. If the CSA agreement allows for re-hypothecation, that collateral

can be repo-ed to another party to fund at a much lower rate than an

unsecured funding rate.

– Simplifying assumptions: 0 Thresholds & MTAs, daily remargining, one

currency, no haircuts on securities, no dispute…


� Hence CSA-covered positions can be funded by using an OIS

discount curve

� Non CSA-covered positions are funded using the internal cost

of funds (senior unsecured debt)

22

The Ideal CSA Hypotheses

� Bilateral Agreement

� Continuous Margining

� Instantaneous settlement of margin calls

� 0 Threshold and Minimum Transfer Amount� 0 Threshold and Minimum Transfer Amount

� No Independent Amounts

� No haircuts

� Cash (or equivalent instrument) collateral, independent from exposure

� No valuation differences

� No disputes

� Netting set = Margining set

� No Initial Margin

� CCR :


� CCR :

– No rehypothecation / segregation of collateral accounts

– No Initial Margin with risky entities

– No settlement risk on margin flows

� Funding :

– Rehypothecation / no segregation of collateral accounts

– No Initial Margin

– Single risk-free collateral asset (e.g. no currency basis arbitrage)

23

New FO and Risk systems needs

� Front-Office systems require flexible curve allocation

mechanisms:

– Collateral documentation is pricing data!– Collateral documentation is pricing data!

– Rule-based dynamic allocation of curves based on both the leg currency and underlying

collateral currency

� Proper allocation of risk and sensitivities

– E.g. Uncollateralised CMS swap (CMS rate derived from collateralised instruments)

� Need a multiple curve calibration engine:

– Able to detect the

dependencies

– Wider selection of curve


– Wider selection of curve

building instruments

– Simultaneous bootstrapping of

all involved curves with

accuracy and speed.

24

Pricing example

� In-the-money XCCY

swap EUR/USD with 5Y

outstanding maturity

Uncollateralized USD CSA

outstanding maturity

� P&L impact of 36bp

� Forward MtM, vs.

Expected Exposure &

Expected Liability

evolution.


evolution.

25

Pricing in a Multiple Curve Environment

� Forwarding curves are derived from collateralized quotes

– Joint bootstrapping of discounting and forwarding curves

– E.g. EONIA and EURIBOR 3M, then EURIBOR 6M vs. 3M…– E.g. EONIA and EURIBOR 3M, then EURIBOR 6M vs. 3M…

– Triangular calibration with XCCY basis curves or markets with varying liquid swap

tenors depending on the horizon.

� Different discounting curves depending on the CSA clauses.

– EURIBOR swap collateralized in EUR is discounted on an EONIA curve

– EURIBOR swap collateralized in USD is discounted on a EUR/USD XCCY basis curve

built upon a USD Feds Funds curve.


Pricing in a Multiple Curve Environment

� The new funding paradigm requires multi-curve

evolutions for derivatives pricing and CVA evolutions for derivatives pricing and CVA

estimation.

– Current standard market practice: deterministic basis spreads

curves on top of a risk-free OIS curve

– Currently testing a HJM 2F stochastic basis spread model,

calibrated to historical data (results to be presented soon).

� Another difficult question pertains to


� Another difficult question pertains to

correlations

(OIS-LIBOR spread vs. rates, bond-CDS basis vs. LIBOR basis and

credit…)

27

Main issue: the CSA is not perfect

� When exposure is in-between thresholds, we fund at

LIBOR + spread and not at OIS flat

� Non-cash asset: haircuts and rehypothecation rights?� Non-cash asset: haircuts and rehypothecation rights?

� Choice of collateral currency:

– Steep XCCY basis spreads with the current USD squeeze

– Apparently comparable to a contingent Bermudan XCCY swaption on

the portfolio (hint at American Monte Carlo pricing)

– In practice varying implementation approaches

– However, uncertain execution / enforceability

• Different legal interpretations (US vs. UK law – do we require the consent of

the receiving party? Is full substitution always possible when there is no


the receiving party? Is full substitution always possible when there is no

margin call?...)

• Will the collateral management team deliver the adequate collateral?

– Will the issue disappear with the Standard CSA?

� Does the local market even have a liquid OIS instrument?

� One-way CSA case is another tricky case of funding

asymmetry (one threshold pushed to infinity)

28

One-Way Collateral Agreements

� Funding cost at OIS flat

� Funding benefit at unsecured debt level

� Double hit: CVA & FVA

Part II

� Double hit: CVA & FVA

Usually SSAs will have much lower credit spreads than the institution so

the Funding risk effect would dominate the Credit risk one.

� Difficult to value in the simple discount switch setting,

however actual quoted price is unlikely to be the “fair-one”.

Borrow at LIBOR + spread


Receive funding at OIS flat

Borrow at LIBOR + spread

29

Introducing the Standard CSA

� New collateral support annex protocol promoted by

ISDA

� Aim to standardize valuation practices

– Specify OIS discounting

– Remove the collateral switch optionality

– Align CSA to the margining mechanics of CCPs

� 0 Threshold, no MTA, daily margining

� Cash collateral only for variation margin

� Phased implementation in 2012 : transactions can


� Phased implementation in 2012 : transactions can

be moved from legacy CSA to S-CSA

� Transactions pooled in 5 Designated Collateral

Currency buckets

30


Local currency OIS discounting (EONIA, SONIA…)

Discounting on USD Feds Funds & corresponding

FX basis curves

Phase I

CHF trades

CHF collateral balance

EUR trades

EUR collateral balance

GBP trades

GBP collateral balance

JPY trades

JPY collateral balance

CCS and other

currencies

USD collateral balance

(EONIA, SONIA…) FX basis curves

Margin


Margin Calls / Deliveries

CounterpartyCounterparty

Herstatt Risk!31


CHF trades EUR trades GBP trades JPY tradesCCS and other

Phase II

CHF trades

CHF collateral balance

EUR trades

EUR collateral balance

GBP trades

GBP collateral balance

JPY trades

JPY collateral balance

other currencies

USD collateral balance

Margin Calls / Deliveries

Safe settlement: PvP platform operated by ISDA


Swap margins to USD (ISA method)

Counterparty

32

Moving to S-CSA: system implication


� Straight-forward

adaptation of the

CVA Monte Carlo MarginingNodes


ISDA - ABC

CSA – EUR

…

CSA – USD*

CVA Monte Carlo

Engine thanks to

dynamic

construction of the

netting and

margining sets

(rule-based)

� In practice, need


Bank ABC

Legacy CSA

CSA – USD*

No collateral

…

to follow closely

migration of trade

blocks (by

products, entities)

from legacy CSA to

SCSA margining.

33

S-CSA implementation challenges

� Collateral systems impact:

ISDA : “Regardless of approach, firms will need to undertake considerable internal technology and process re-engineering work to implement the SCSA.”

� Collateral systems impact:

– Electronic messaging

– Exposure pooling and collateral accounts by currency buckets & flexible

mechanism to migrate positions off legacy CSA

– Mandatory OIS discounting

– Implementation of ISA & PvP processes

� Front-office:

– Availability of collateral eligibility criteria at point of pricing


– Discount curve allocation mechanism based on CSA / SCSA mappings

– For a period of time maintain local OIS curves and Basis OIS curves

� CVA / FVA units

– Consistent mapping of the positions to currency buckets

– Multiple margining sets per netting set

– Value margin conversion via ISA-type method and capture FX risk over

MPR34

FVA - Collateral Modeling

� An alternative approach to the Discount Method consists in

looking at the question from a portfolio level by representing the

funding cost as another valuation adjustment(the OIS curve providing a proxy for the risk-free rate).(the OIS curve providing a proxy for the risk-free rate).

� Evolve market rates and explicitly model the collateral balances

and a funding strategy. E.g.

– Collateral balance : funded at OIS flat

– Portfolio value – balance : shortfall funded at own cost of funds

� Extend existing CVA simulation framework since this will provide:

– A consistent pricing framework for CVA and FVA (calibration, deal aging and termination


– A consistent pricing framework for CVA and FVA (calibration, deal aging and termination

events)

– The CVA engine already has all required business logic (margining set mapping, curve and

spreads evolution)

– A validated & controlled infrastructure : inter-system data flows, interfaces, reconciliation

processes

– A low & managed TCO, as one can leverage existing infrastructure (e.g. grid, GPU farm) :

running FVA calculations on top of a CVA simulation is computationally efficient (provided i.

consistent modeling assumptions and ii. that collateralized positions are already included)

35


� Rates curves are

evolved jointly


� Collateral

Balances are

obtained at the

margining node

level

� Collateral assets

are funded at the

MarginingNodes


ISDA - ABC

CSA – EUR

…

CSA – USD*


are funded at the

Agreement’s

specified rate

source

� Collateral

shortfalls funded

on funding curve

Bank ABC

Legacy CSA

CSA – USD*

No collateral

…

36


� Practical simulation implementation : DVA is not the FVA

benefit (MPR vs. Settlement lag).


Settlement Lag

Collateral


Simulation date T i


Collateral Balance (CVA)

Ti - MPR Ti - SL

Collateral Balance (FVA)

Collateral Funding

37


� Reducing the MPR (10 days)

to the Settlement lag (3

days) halves the DVA

estimate.

� Final FVA impact would be

stronger on portfolios with

imbalanced EPE/ENE profiles


imbalanced EPE/ENE profiles

or asymmetric collateral

terms (thresholds, IAs, one-

way CSA).

38

What about FVA for CCP-cleared products?

� Margin requirement broadly split in IM and VM

� IM typically much larger and aimed at covering gap risk over the

auctioning period (so as to preserve default funds contributions)auctioning period (so as to preserve default funds contributions)

� IM models are typically VaR-based (adjusted with credit and

liquidity factors)

� The IM funding requirement will then depend on the

“directionality” of the cleared portfolio!

� Should this additional cost be modeled on an incremental basis

(consistent with CVA and OTC FVA), or handled as a post trade


(consistent with CVA and OTC FVA), or handled as a post trade

operational cost? Incentives may differ vastly depending on the

institution.

� Extending the CVA/FVA model to provide estimation of forward

Initial Margin requirements would require a forward approximation

of the margining sets VaR. Computationally, the issue is similar to

the estimation of the incremental RWA cost of capital.

39

Variation Margin and Initial Margin

� FVA for cleared products should, in theory, account for the

incremental cost of funding the Initial Margin

High C.L.VaR

5 days to close the auctioning process

Variation Margin

Initial Margin


Position at T i-1 Position at T

Variation Margin

40

An open question

� Should we look at aligning the industry’s modeling of MPR and close-

out gap risk for CVA/PFE with the CCPs’ I.M. estimation models?

Initial Margin

– Standard I.M. models implemented at CCPs

– Volatility vs. time-acceleration

– Directionality of underlying netting

sets exposures

– Adjustments for systematically important

financial institutions.

– Contingent funding stress

vs. WWR models


Position at T

41

Questions and practical issues

� Vanillas are de-facto level-2 derivatives and market prices are not

transparent (difficulty to unwind off-market positions)

� Broker quotes need to be reinterpreted (e.g. B&S vols)

� New premium quotation modes (unfortunately not applicable for all

types of options)

� Sensitivities and hedge ratios differ between collateralized and

uncollateralized cases

� Perfect hedge can only be achieved under identical collateralization

terms

� Pricing effects are complex to quantify for imperfect

collateralization cases and embedded optionalities


collateralization cases and embedded optionalities

� Difficult /costly hedging of basis risks

� Convexity and wrong-way funding effects deemed small (price

impact smaller than bid-ask) but traders need to be aware of them

� Which CSA clauses should be modeled / can be hedged ?

42

Questions and practical issues

Internal organization challenges:

� Need to implement consistent pricing of new transactions, unwinds � Need to implement consistent pricing of new transactions, unwinds

and legacy books

� Fair pricing of internal positions

� Ownership of the funding issue and hedging

� Ensure that the Collateral Management & Treasury functions

provide optimal funding (as supposed in the pricing)

� Integration of data flows and inter-operability : both a processes

and systems challenge !

� Establish clear-cut transfer pricing and cost management policies


� Establish clear-cut transfer pricing and cost management policies

43

Two modeling and organizational models

� Discount curves method � Global FVA/CVA exposure method

� Requires significant investments (starting with

a simulation framework)

� Simpler to implement in a crude way,

additional complexity with curves a simulation framework)

� Global hybrid pricing consistent across desks

and with CVA.

� Flexible handling of CSA agreements and

explicit modeling of the funding strategy

– Reproduces the previous method results under

specific cases

– Can include funding impact of credit mitigants

� Isolates clearly funding cost from valuation and

CVA/DVA

additional complexity with curves

management and FO assignments

� Trade pricing compatible with local desk

models.

� Fail to account for corner cases

– asymmetric funding terms

– convexity effects (e.g. spread / rates correlation)

– liquidation value different from risk-free value

� Non-explicit link with DVA


� Portfolio-level, cost reallocated to the trades

(like CVA)

� Funding and convexity risk transferred to a

centralized Funding / Treasury desk

� Works best when bringing together Treasury,

CVA and Collateral trading operations

� Deal-level and easily understood by traders

� Funding and convexity risk owned by the

traders

� Works best with smaller decentralized

operations well collateralized

Open question : what should be the regulatory treatment of the FVA market risk in the

second setting? FVA VaR integrated in the IMA model?

44

Some useful references

Collateralization & Counterparty Risk:

� D. Brigo & A. Pallavicini (2011) – Arbitrage-Free Counterparty Risk Valuation

under Collateral Margining

� D. Brigo (2011) – Counterparty Risk FAQ: Credit VaR, PFE, CVA, DVA, Closeout,

Netting, Collateral, Re-Hypothecation, WWR, Basel, Funding, CCDS and Margin

Lending.

� J. Gregory (2009) – Being two-faced over counterparty risk

� J. Hull & A. White (2011) – CVA and Wrong Way Risk.

� ISDA (2011) – Overview of ISDA Standard Credit Support Annex (SCSA).

� M. Pykhtin (2010) – Collateralised credit exposure, in Counterparty Credit Risk,

edited by E. Canabarro, Risk Books.

� M. Pykhtin & D. Rosen (2010) – Pricing Counterparty Risk at the Trade Level and


� M. Pykhtin & D. Rosen (2010) – Pricing Counterparty Risk at the Trade Level and

CVA Allocations.

Books:

� J. Gregory – Counterparty credit risk – The new challenge for global financial

markets. Wiley Finance.

� G. Cesari & al. – Modelling, Pricing, and Hedging Counterparty Credit Exposure.

45

Some useful references

Collateralization & Funding:

� C. Fries (2010) – Discounting Revisited: Valuation Under, Funding, Counterparty

Risk and Collateralisation.

� M. Fuji, Y. Shimada & A. Takahashi (2010) – Collateral Posting and Choice of

Collateral Currency.

� A. Green (2011) – Engineering a CVA and FVA solution, talk given at the WBS

Discounting and Funding conference , November.

� M. Morini & A. Prampolini (2010) – Risky funding: a unified framework for

counterparty and liquidity charges.

� V. Piterbarg (2010) – Funding beyond discounting: collateral agreements and

derivatives pricing, Risk Magazine, February issue.

� Risk Magazine (2011) – The evolution of swap pricing. Nick Sawyer, March issue.


� Risk Magazine (2011) – The evolution of swap pricing. Nick Sawyer, March issue.

� M. Singh & J. Aitken (2010) – The (sizable) Role of Rehypothecation in the

Shadow Banking System.

Blogs:

� Deus ex Macchiatto (blog.rivast.com).

� FT Alphaville (ftalphaville.ft.com).

46

T H A N K Y O [email protected]

47

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