The Evolution of Counterparty Credit Risk: An Insider's View
Quantifi CEO, Rohan Douglas, talks about the latest release
Q&A with Olivier Renault of Stormharbor
Basel III Greenhorn – Process and Information System MetamorphosisInfosys
This paper discusses the basic process and system architecture required to combat the Basel n+1 syndrome, and how technology can be creatively leveraged for active risk management.
Apresentação de Ricardo Lanfranchi, Head of Equities Sales, Barclays Capital, no Seminário “Targeting: Como conhecer e gerenciar sua base de acionistas?”, realizado pelo IBRI em 18/08/2009 em SP.
Sales – O Targeting “em ação”
Quantifi whitepaper how the credit crisis has changed counterparty risk man...Quantifi
This paper will explore some of the key changes to internal counterparty risk management processes by tracing typical workflows within banks before and after CVA desks, and how increased clearing due to regulatory mandates, affects these workflows. Since CVA pricing and counterparty risk management workflows require extensive amounts of data, as well as a scalable, high-performance technology, it is important to understand the data management and analytical challenges involved.
• Current trends and best practices
• Key data and technology challenges
Basel III Greenhorn – Process and Information System MetamorphosisInfosys
This paper discusses the basic process and system architecture required to combat the Basel n+1 syndrome, and how technology can be creatively leveraged for active risk management.
Apresentação de Ricardo Lanfranchi, Head of Equities Sales, Barclays Capital, no Seminário “Targeting: Como conhecer e gerenciar sua base de acionistas?”, realizado pelo IBRI em 18/08/2009 em SP.
Sales – O Targeting “em ação”
Quantifi whitepaper how the credit crisis has changed counterparty risk man...Quantifi
This paper will explore some of the key changes to internal counterparty risk management processes by tracing typical workflows within banks before and after CVA desks, and how increased clearing due to regulatory mandates, affects these workflows. Since CVA pricing and counterparty risk management workflows require extensive amounts of data, as well as a scalable, high-performance technology, it is important to understand the data management and analytical challenges involved.
• Current trends and best practices
• Key data and technology challenges
Counterparty risk in a post Lehmans World -- January, 2010catelong
Results from joint Credit/FitchSolutions survey shows most buy-side firms do not hedge counterparty risk.
Those surveyed cited hedging as too expensive.
The presentation suggest using CDS as early market systems of increasing risk from counterparties.
Is network theory the best hope for regulating systemic risk?Kimmo Soramaki
The presentation is organised around three policy questions:
1. How can we measure the systemic importance of a bank?
2. Can regulators promote a safer financial system by affecting its topology?
3. Is it possible to devise early-warning indicators from real-time data?
EMIR - European market infrastructure regulation has been initiated by European union to avoid situation similar to 2008-09. Financial scenario led Lehman to default and bear stearn near to collapse.
This helps EU regulatory bodies to monitor OTC, CCP and TRs.
Counterparty Credit Risk and CVA under Basel IIIHäner Consulting
Financial institutions which apply for an IMM waiver under Basel III need to fullfill a broad set of requirements. We present the quantitative, organizational and operational implications and provide some hand-on guidance how to fulfill the regulatory requirements.
Liquidity Risk is normally a crucial issue in a banking crisis, however, during the 2007-2010 period, Liquidity has not been as difficult for us as we may have thought. There are many reasons for this, but number one is the fact that today’s community bankers simply have a better understanding of the various techniques for raising both retail deposits and wholesale funds. What does make this crisis a bit different is the relative pricing efficiencies in the wholesale or non-core funding arena these days and our session will focus on how bankers can avoid those difficult examiner discussions about the use of FHLB Advances and Brokered Deposits. It’s all about process and we will provide guidance on what needs to be in your ALCO Policy as it relates to wholesale funding. We will also explore the April 2010 Liquidity and Funds Management Guidance to ensure your bank is up to speed on those requirements. Finally, we will provide specific guidance on both Ratio Analysis and creating your Contingency Funding Plan and will review a sample CFP.
CVA, DVA and Q4 Bank Earnings
Conversation with Brian Naini, Channel Capital
Quantifi releases Version 10.2
Quantifi launches counterparty risk and CVA portal
Counterparty risk in a post Lehmans World -- January, 2010catelong
Results from joint Credit/FitchSolutions survey shows most buy-side firms do not hedge counterparty risk.
Those surveyed cited hedging as too expensive.
The presentation suggest using CDS as early market systems of increasing risk from counterparties.
Is network theory the best hope for regulating systemic risk?Kimmo Soramaki
The presentation is organised around three policy questions:
1. How can we measure the systemic importance of a bank?
2. Can regulators promote a safer financial system by affecting its topology?
3. Is it possible to devise early-warning indicators from real-time data?
EMIR - European market infrastructure regulation has been initiated by European union to avoid situation similar to 2008-09. Financial scenario led Lehman to default and bear stearn near to collapse.
This helps EU regulatory bodies to monitor OTC, CCP and TRs.
Counterparty Credit Risk and CVA under Basel IIIHäner Consulting
Financial institutions which apply for an IMM waiver under Basel III need to fullfill a broad set of requirements. We present the quantitative, organizational and operational implications and provide some hand-on guidance how to fulfill the regulatory requirements.
Liquidity Risk is normally a crucial issue in a banking crisis, however, during the 2007-2010 period, Liquidity has not been as difficult for us as we may have thought. There are many reasons for this, but number one is the fact that today’s community bankers simply have a better understanding of the various techniques for raising both retail deposits and wholesale funds. What does make this crisis a bit different is the relative pricing efficiencies in the wholesale or non-core funding arena these days and our session will focus on how bankers can avoid those difficult examiner discussions about the use of FHLB Advances and Brokered Deposits. It’s all about process and we will provide guidance on what needs to be in your ALCO Policy as it relates to wholesale funding. We will also explore the April 2010 Liquidity and Funds Management Guidance to ensure your bank is up to speed on those requirements. Finally, we will provide specific guidance on both Ratio Analysis and creating your Contingency Funding Plan and will review a sample CFP.
CVA, DVA and Q4 Bank Earnings
Conversation with Brian Naini, Channel Capital
Quantifi releases Version 10.2
Quantifi launches counterparty risk and CVA portal
The spring 2014 Insight newsletter from Quantifi, including a conversation with Hannan Mohammed, deputy head of the funding and markets division of AFD, and a Q&A with Mark Traudt, CTO of Quantifi.
The spring 2013 Insight newsletter from Quantifi, discussing the management of counterparty credit risk.
A conversation with Arne Loftingsmo, Portfolio Manager at KLP Kapitalforvaltning AS.
The July 2015 Insight newsletter, discussing the changing regulatory landscape and including a conversation with Matthew Lynes, Senior Investment Manager at Aberdeen Asset Management
Conversation with Matthew Lynes, Aberdeen Asset Management. Buy-Side System Requirements - Whitepaper by Quantifi and OTC Partners. The Cost of Collateral - Webinar Survey.
The autumn 2012 newsletter from Quantifi, discussing alternative methods for calculating CVA charges under Basel III. Robert Goldstein, Director of Client Services at Quantifi talks about Quantifi V10.3 and we chat with Joost Zuidberg, Managing Director of The Currency Exchange Fund
The spring 2015 Insight newsletter from Quantifi, discussing microservices and the recently published consultative document ‘Review of the Credit Valuation Adjustment (CVA) risk framework’
by the Basel Committee
The spring 2017 Insight newsletter from Quantifi, discussing FRTB and whether it is strengthening market risk practices, and whether banks are prepared for the changes it will bring
In the last few years, the financial markets have undergone dramatic change. While some of this is down to natural evolution, much of the change can be directly attributed to new rules introduced in the wake of the 2007 crisis. Regulators, legislators and central bank governors have been determined to avert another bubble bursting or an unexpected event that could threaten markets. Lawmakers have targeted key financial practices for reform, radically altering the expectations and behavior of industry participants. The combination of the Dodd-Frank Act, European Markets Infrastructure Regulation (EMIR), MiFID ll and Basel lll signify the biggest regulatory change in decades. These reforms have resulted in major change to how financial products are traded, settled, collateralized and reported, resulting in deep and ongoing structural changes to the markets.
There is no doubt that these new rules are directly impacting buy-side firms — be they asset managers, hedge funds, insurance companies or pension funds. But while the changes have certainly brought challenges, they have also brought opportunities. Firms that can proactively evaluate structural and operational dislocations in the marketplace and tailor business models to leverage the opportunities while addressing the challenges will be in the best position to stand apart from their competitors. Revised business models call for revisions to supporting processes and systems. Buy-side firms should look to re-architect their processes and technology infrastructure, with a goal to strengthen risk control and oversight, enhance transparency and improve efficiency of front-to-back office control functions.
The credit crisis, and the regulatory response it spawned have fundamentally reshaped financial markets for buy-side firms. But while the changes have brought about challenges, they have also ushered in opportunities. The key to success will be the speed with which firms are able to understand the changing marketplace and adapt their business models to align with the changes.
IFRS 13 CVA DVA FVA and the Implications for Hedge Accounting - By Quantifi a...Quantifi
International Financial Reporting Standard 13: fair value measurement (IFRS 13) was originally issued in May 2011 and applies to annual periods beginning on or after 1 January 2013. IFRS 13 provides a framework for determining fair value, clarifies the factors to be considered for estimating fair value and identifies key principles for estimating fair value. IFRS 13 facilitates preparers to apply, and users to better understand, the fair value measurements in financial statements, therefore helping improve consistency in the application of fair value measurement.
Quantifi whitepaper basel lll and systemic riskQuantifi
One of the key shortcomings of the first two Basel Accords is that they approached the solvency of each institution independently. The recent crisis highlighted the additional ‘systemic’ risk that the failure of one large institution could cause the failure of one or more of its counterparties, which could trigger a chain reaction.
Basel III addresses this issue in two ways:
1) by significantly increasing capital buffers for risks related to the interconnectedness of the major dealers and
2) incentivising institutions to reduce counterparty risk through clearing and active management (hedging). Since Basel III may not explicitly state how some of the new provisions address systemic risk, some analysis is necessary.
Financial Assets: Debit vs Equity Securities.pptxWrito-Finance
financial assets represent claim for future benefit or cash. Financial assets are formed by establishing contracts between participants. These financial assets are used for collection of huge amounts of money for business purposes.
Two major Types: Debt Securities and Equity Securities.
Debt Securities are Also known as fixed-income securities or instruments. The type of assets is formed by establishing contracts between investor and issuer of the asset.
• The first type of Debit securities is BONDS. Bonds are issued by corporations and government (both local and national government).
• The second important type of Debit security is NOTES. Apart from similarities associated with notes and bonds, notes have shorter term maturity.
• The 3rd important type of Debit security is TRESURY BILLS. These securities have short-term ranging from three months, six months, and one year. Issuer of such securities are governments.
• Above discussed debit securities are mostly issued by governments and corporations. CERTIFICATE OF DEPOSITS CDs are issued by Banks and Financial Institutions. Risk factor associated with CDs gets reduced when issued by reputable institutions or Banks.
Following are the risk attached with debt securities: Credit risk, interest rate risk and currency risk
There are no fixed maturity dates in such securities, and asset’s value is determined by company’s performance. There are two major types of equity securities: common stock and preferred stock.
Common Stock: These are simple equity securities and bear no complexities which the preferred stock bears. Holders of such securities or instrument have the voting rights when it comes to select the company’s board of director or the business decisions to be made.
Preferred Stock: Preferred stocks are sometime referred to as hybrid securities, because it contains elements of both debit security and equity security. Preferred stock confers ownership rights to security holder that is why it is equity instrument
<a href="https://www.writofinance.com/equity-securities-features-types-risk/" >Equity securities </a> as a whole is used for capital funding for companies. Companies have multiple expenses to cover. Potential growth of company is required in competitive market. So, these securities are used for capital generation, and then uses it for company’s growth.
Concluding remarks
Both are employed in business. Businesses are often established through debit securities, then what is the need for equity securities. Companies have to cover multiple expenses and expansion of business. They can also use equity instruments for repayment of debits. So, there are multiple uses for securities. As an investor, you need tools for analysis. Investment decisions are made by carefully analyzing the market. For better analysis of the stock market, investors often employ financial analysis of companies.
Exploring Abhay Bhutada’s Views After Poonawalla Fincorp’s Collaboration With...beulahfernandes8
The financial landscape in India has witnessed a significant development with the recent collaboration between Poonawalla Fincorp and IndusInd Bank.
The launch of the co-branded credit card, the IndusInd Bank Poonawalla Fincorp eLITE RuPay Platinum Credit Card, marks a major milestone for both entities.
This strategic move aims to redefine and elevate the banking experience for customers.
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
where can I find a legit pi merchant onlineDOT TECH
Yes. This is very easy what you need is a recommendation from someone who has successfully traded pi coins before with a merchant.
Who is a pi merchant?
A pi merchant is someone who buys pi network coins and resell them to Investors looking forward to hold thousands of pi coins before the open mainnet.
I will leave the telegram contact of my personal pi merchant to trade with
@Pi_vendor_247
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
How to get verified on Coinbase Account?_.docxBuy bitget
t's important to note that buying verified Coinbase accounts is not recommended and may violate Coinbase's terms of service. Instead of searching to "buy verified Coinbase accounts," follow the proper steps to verify your own account to ensure compliance and security.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Turin Startup Ecosystem 2024 - Ricerca sulle Startup e il Sistema dell'Innov...Quotidiano Piemontese
Turin Startup Ecosystem 2024
Una ricerca de il Club degli Investitori, in collaborazione con ToTeM Torino Tech Map e con il supporto della ESCP Business School e di Growth Capital
what is the future of Pi Network currency.DOT TECH
The future of the Pi cryptocurrency is uncertain, and its success will depend on several factors. Pi is a relatively new cryptocurrency that aims to be user-friendly and accessible to a wide audience. Here are a few key considerations for its future:
Message: @Pi_vendor_247 on telegram if u want to sell PI COINS.
1. Mainnet Launch: As of my last knowledge update in January 2022, Pi was still in the testnet phase. Its success will depend on a successful transition to a mainnet, where actual transactions can take place.
2. User Adoption: Pi's success will be closely tied to user adoption. The more users who join the network and actively participate, the stronger the ecosystem can become.
3. Utility and Use Cases: For a cryptocurrency to thrive, it must offer utility and practical use cases. The Pi team has talked about various applications, including peer-to-peer transactions, smart contracts, and more. The development and implementation of these features will be essential.
4. Regulatory Environment: The regulatory environment for cryptocurrencies is evolving globally. How Pi navigates and complies with regulations in various jurisdictions will significantly impact its future.
5. Technology Development: The Pi network must continue to develop and improve its technology, security, and scalability to compete with established cryptocurrencies.
6. Community Engagement: The Pi community plays a critical role in its future. Engaged users can help build trust and grow the network.
7. Monetization and Sustainability: The Pi team's monetization strategy, such as fees, partnerships, or other revenue sources, will affect its long-term sustainability.
It's essential to approach Pi or any new cryptocurrency with caution and conduct due diligence. Cryptocurrency investments involve risks, and potential rewards can be uncertain. The success and future of Pi will depend on the collective efforts of its team, community, and the broader cryptocurrency market dynamics. It's advisable to stay updated on Pi's development and follow any updates from the official Pi Network website or announcements from the team.
1. IN
NEWSLETTER ISSUE 03 SIGHT 2011
THE EVOLUTION
OF COUNTERPARTY
CREDIT RISK: An Insider’s View
Also in this issue:
Rohan Douglas, CEO, Quantifi
talks about release of QX.1
Page 3
Q&A with Olivier Renault,
StormHarbour
Page 6
2. MESSAGE NEWS
FROM Client News:
THE CEO Varden Pacific Selects Quantifi to Power
OTC Trading and Regulatory Compliance
“The unique combination of intuitive
data management, fast and accurate
Even though regulatory uncertainty and market volatility risk analysis, and flexible, detailed
continue to dominate the OTC markets, we are seeing reporting gives us the confidence to
institutions that are profiting from being able to capture make informed investment decisions
opportunities as they arise. This is an environment where an whilst providing the transparency and
investment in better analytics and risk management can make a robust infrastructure our investors
difference to profitability. In a similar way, we believe a proactive require. Quantifi Risk was deployed in
investment in infrastructure to support central clearing and new a matter of days. As it required minimal
regulations will make a difference to future profitability. internal infrastructure and resources, we
were able to enter the market quickly
On the subject of investing in infrastructure - technology is and achieve an immediate return on our
playing an increasingly important role for the OTC markets and investment.” - Shawn Stoval, Managing
this trend is likely to accelerate with the introduction of central Partner, Varden Pacific
clearing. The complexity of the trading, operational, and risk
management systems required to support OTC businesses Prosiris Selects Quantifi for Risk
have dramatically increased. Comparing state of the art from Management and Reporting
ten years ago to state of the art today highlights the challenges “Given the sophistication of our trading
of developing systems that not only meet current needs, but strategy, the key factors in selecting
also are flexible enough to keep up with future demands. Quantifi Risk are industry leading analytics
combined with flexibility and usability. As
At a time when the cost of capital is increasing and profitability a recognised leader, Quantifi provides the
is uncertain, the accurate and careful management of capital level of accuracy and sophistication we
and return on capital becomes essential to a firms survival. As need to trade and effectively manage our
the complexity of technology infrastructure increases, cost and risks. By partnering with Quantifi we now
project risk dramatically increase. An estimated 50% of large have the opportunity to focus our capital
IT projects fail (Harvard Business Review Sep’03). This failure and time on our core business rather than
carries both a huge cost risk as well as opportunity risk to spend time and resources developing an
businesses that depend on timely delivery of this infrastructure. internal solution.” - Jerry Chang, Chief
This shifting dynamic is re-defining the efficient boundary of Financial Officer, Prosiris
the buy versus build decision. As IT becomes more strategic,
institutions need to carefully evaluate and manage their IT spend
and focus on IT that provides a competitive advantage while
2011 Events:
outsourcing at a lower cost the infrastructure that does not. Credit Risk USA - New York City,
September 15
This month we have some exciting corporate news. I am
delighted to welcome Dmitry Pugachevsky, former head of Dmitry Pugachevsky, Director, Research at
counterparty credit modelling at JP Morgan, as Research Quantifi, leads post-conference seminar
Director. Dmitry is a well-known figure in the industry and his on counterparty credit risk and CVA
extensive counterparty credit and broad cross-asset modelling
Quantifi Seminar: Counterparty Risk
experience is a great addition to our team. Furthermore, our
and CVA, What’s New? - New York City,
release of QX.1 demonstrates our significant investment in
October 18
development and our commitment to ensuring our clients
Join Quantifi & PRMIA for an interactive
remain competitive by being well-prepared and strategically
seminar on counterparty risk and CVA and
positioned for future change.
hear from experienced practitioners.
Risk USA - New York City, November 1 - 2
Quantifi sponsors Risk USA
Risk Minds - Geneva, December 6 - 8
Quantifi sponsors RiskMinds, Geneva.
ROHAN DOUGLAS, Founder and CEO Visit us on Stand 4
02 | www.quantifisolutions.com
3. Rohan Douglas, CEO of Quantifi, talks about
the latest version release of its pricing and risk
analytics software, Quantifi QX.1
Driven by client needs and transformations in the OTC markets, QX.1 (V10.1) includes
a broad range of enhancements across Quantifi’s entire product range including
enhanced reporting, data management capabilities and broader asset coverage.
What were the key goals for QX.1? needs with our new generation of client plug-
A key driver for QX.1 has been the rapidly changing and-play interfaces
regulatory and market environment. Our goal is to Leverage Quantifi to support a broader range of
provide clients with a smooth transition to central traded asset classes
clearing, valuation model changes and future regulatory More easily interface with additional data
demands including Basel III. Helping our clients focus vendors with expanded out of the box support
on their core business by providing them with tools that Provide on-desk CVA pricing integrated with
they can depend on has always been a priority. Another Quantifi’s pricing and structuring solutions
key goal for QX.1 has been responding to client demand Implement Basel III compliance with enterprise
for broader asset coverage. counterparty risk solutions
How does QX.1 support the ongoing OTC
market changes?
Regulatory and structural changes in the OTC
WHATS NEW IN QX.1?
markets are having a profound impact on all aspects
of technology, research, and operations. QX.1
demonstrates our long history of being able to
rapidly evolve ahead of the market and introduces enhancements for FX, FX Forwards, FX
innovative new functionality as well as broader asset Options, basis swaps, callable bonds,
convertible bonds, FRAs, Swaptions and
coverage designed to help clients, including:
credit index options
Expanded asset coverage matching client demand
Significant enhancements to counterparty risk risk management including Basel III
management including Basel III compliance compliant capital calculations, stress
A unique new plug-and-play interface for client testing, back-testing, enhancements to
model integration, product extendibility, and margin period of risk calculations, collateral
data integration thresholds by rating, additional calibration
Expanded data management capabilities tools and extended product coverage for
Additional data vendor interfaces for smooth commodities and inflation
integration
A redesigned reporting engine with more flexibility, to simplify complex data integration and
better reporting, and improved performance data management
How will your clients benefit from QX.1?
We work hard to make sure our migration process is play client model integration, product
smooth and simple. Clients will be able to leverage extendibility, and data integration
new features immediately. I would expect key
benefits to be: memory hypercube for improved reporting
and drill down flexibility, simplified integration
Produce more detailed reports with enhanced
of external data sources, and improved
graphics and more flexible reporting for even the
performance for high-volume portfolios
largest portfolios
Easily customise our solutions to specific
www.quantifisolutions.com | 03
4. COVER STORY
THE EVOLUTION
OF COUNTERPARTY
CREDIT RISK: An Insider’s View
BY DAVID KELLY, Director of Credit, Quantifi a single number that could be used for rudimentary
and JON GREGORY, Consultant calculations. In contrast, the more derivatives oriented
investment banks calculated reserves by simulating
Counterparty credit risk management has been evolving potential future positive exposures of the actual
for over a decade from passive risk quantification and positions. The simulation models persevered because
reserves to active management and hedging. The term they more precisely valued each unique position and
CVA (credit value adjustment) has become well-known directly incorporated credit risk mitigants.
and represents a price for counterparty risk. Substantial
responsibility is being transferred from credit officers to By 2000, the simulation based CVA and economic
CVA traders, groups with the responsibility of pricing capital reserve model was state of the art although
and managing all the counterparty risk within an only a few institutions were able to perform exposure
organisation. Banks today tend to be distributed along limit checks and calculate pre-deal CVA on a real-time
the evolutionary timeline by size and sophistication. basis for new transactions. Institutions had expanded
Whilst global banks are focusing more on hedging CVA, portfolio coverage in order to maximise netting and
driven by dramatically increased capital requirements diversification benefits. However, the down credit cycle
under Basel III, smaller and more regional banks, initiated by the Enron and WorldCom failures, following
together with other financial institutions such as asset the wave of consolidation and increased concentration
managers are closer to the beginning stages. of risk, forced the large banks to think about new ways
to manage credit risk.
Reserve model While banks had used CDS as a blunt instrument to
Reserve models are essentially insurance policies reduce large exposures, there had been limited effort in
against losses due to counterparty defaults. For each actively hedging counterparty credit risk. The need to
transaction, the trading desk pays a premium into a increase capacity, as well as changing standards for fair
pool from which credit losses are reimbursed. The value accounting (IAS 39 and FAS 157), spawned two
premium amount is based on the creditworthiness of significant and mostly independent solutions. The first
the counterparty and the future exposure, accounting solution, driven by the front office, involved pricing and
for risk mitigants such as netting and collateral hedging counterparty credit risk like other market risks.
(margin) agreements and the overall level of portfolio The second solution, basically in response to the first,
diversification. Traditional pre-merger banks and introduced active management into the simulation model.
their eventual investment banking partners all used
reserve models and exposure limits, but the underlying
methodologies were very different.
Front-office market model
An innovation that emerged in the mid to late 90’s was
Banks typically converted exposures into so-called incorporating the credit variable into pricing models
‘loan equivalents’ and then priced the credit risk in loan in order to price and hedge counterparty risk at the
terms. In the early days, loan equivalents were critical to position level like other market risks. There were
simplify a potentially quite complex future exposure into two ways to implement this ‘market model’. The first
04 | www.quantifisolutions.com
5. involved valuing the counterparty’s unilateral option to frequency, although ongoing numerical and
default. The second used the bilateral right of setoff, technological innovations are collapsing these times. In
which simplified the model to risky discounting due to addition, residual correlation risks, including wrong-way
the offsetting option to ‘put’ the counterparty’s debt risks, continue to pose a significant challenge.
struck at face value against an exposure.
Current priorities
A few institutions considered transitioning as much Since the onset of the crisis, firms that had a
of their credit portfolio as possible into the market comprehensive, integrated approach to credit risk
model, using bilateral setoff wherever possible and the management survived and emerged while those that had
unilateral option model for the rest. The idea seemed a fragmented approach struggled and failed. This punch
reasonable since over 90% of corporate derivatives line and the evolutionary process that helped deliver
were vanilla interest rate and cross-currency swaps. it have resulted in a general convergence toward the
Aside from the obvious issues, e.g., credit hedge portfolio simulation model with an active management
liquidity, the central argument against this methodology component. Several global banks are setting the standard
was that it either neglected collateral and netting or for best practice whereas most mid-tier and regional
improperly aggregated net exposures. The ultimate banks are still balancing the need to comply with CVA
demise of the market model as a scalable solution was accounting requirements with more ambitious plans.
that the marginal price under the unilateral model was
consistently higher than under the simulation model. Global banks are pushing the evolution in three main
areas. First, there is a recognised need to incorporate
Another detriment was the viability of having each wrong-way risk. Basically, wrong-way risk is the case where
trading desk manage credit risk or be willing to transfer the counterparty’s probability of default increases with its
it to a central CVA desk. In addition, systems had to be exposure. Second, recognising collateral risks in terms of
substantially upgraded. A central CVA desk proved a liquidity, valuation and delivery is clearly important. Third,
more effective solution but raised political challenges capturing as much of the portfolio as possible, including
over pricing and P&L. In short, the substantial set of exotics, increases the effectiveness of centralised credit
issues with the market model caused firms to revisit pricing and risk management. Since a disproportionate
the reserve model. amount of risk may come from products for which they
struggle to quantify the CVA (such as credit derivatives),
Merger of the reserve and market models many institutions also favour central counterparties.
Attempts to move credit risk out of the reserve
model and into a market model inspired important Basel III provides more incentive for central
innovations in the simulation framework related to active counterparties due to the near zero risk weighting
management. Banks had been executing macro or of cleared positions. In addition, the Dodd-Frank
overlay CDS hedges, which were effective in reducing legislation in the US and EMIR in the EU mandates
capital requirements but ineffective in that the notional clearing as broadly as possible. Other influential
amount was based on a statistical estimate of the provisions in Basel III are the additional charges for CVA
exposure, not a risk-neutral replication. In addition, that VaR. With the volatility of credit spreads and potential
exposure (notional) varied over time. magnitude of CVA VaR, which may double or even
triple regulatory capital requirements for counterparty
The introduction of contingent credit default swaps risk, banks are incentivised to actively hedge CVA.
(CCDS) addressed the varying notional by setting it
to the fluctuating value of an underlying derivative Another key recent priority has been the use of bilateral
contract. Whilst CCDS are tailor-made to transfer over unilateral CVA. Bilateral counterparty risk is often
counterparty risk within a given contract, extending expressed as DVA (debt value adjustment), which
them to cover many netted contracts with collateral mirrors CVA. Prior to 2007, financial credit spreads were
agreements would be extremely complex, not least extremely low and there was little interest in accounting
in terms of the required documentation. For these for DVA. However, the recent severe deterioration of
reasons, the CCDS product has not developed strongly all credit spreads, including financials, has incentivised
despite the increasing focus on counterparty risk. banks to price DVA in order to offset CVA losses.
Although counter-intuitive, since the bank makes money
Hedging also involved perturbing the market rates when their own credit spread widens, the use of DVA has
used in the simulation and then calculating the become common and generally accepted.
portfolio’s CVA sensitivities, which could then be
converted to hedge notionals. This helped stabilise These priorities were a direct result of recent events but
the CVA charge and reduce economic capital reserves most are not new. Counterparty credit risk remains a very
thereby improving incremental pricing. There were complex problem and institutions have had to approach
several issues with this approach. Simulation of the it in stages. Current best practice is the result of a long
entire portfolio could take hours and re-running it and iterative evolutionary process from which we can
for each perturbed input has restricted rebalancing expect another round of innovation.
www.quantifisolutions.com | 05
6. Q&A
FEATURE
with
Head Olivie
of Str r Re
uctur nault
Storm ing & ,
Harb Advis
our ory,
What does StormHarbour do? Over the course of the past 12 months what
StormHarbour is an investment banking partnership do you consider to be the most significant
focused mainly on fixed income products and with development in the credit markets?
particular expertise of complex structured assets: I would say two things: first is the lack of action in
securitised products, project finance/infrastructure, primary structured credit markets, particularly in Europe.
real estate, and other asset-based finance. We are At the beginning of the year a lot of people thought that
active in secondary sales and trading, as well as 2011 would be the year of the re-opening of primary
primary markets (raising capital for corporates, banks markets. In fact we saw very little action in public markets
or specific infrastructure projects) and advisory. but primary issuance was still dominated by retained
The firm was launched in 2009 and we now have
securitisations and bilateral funding transactions.
approximately 200 people across 8 global offices.
The other key theme of the past 12 months is the volatility
What is your role within the company? in secondary markets with the end of the big rally which
I’m responsible for the Structuring & Advisory team in started in 2009 followed by a spectacular sell-off.
London. We focus primarily on financial institutions and
provide advisory services as well as assistance in the What key challenges and/or opportunities does
structuring and placement of new transactions. To give the current environment bring to your business
you a few examples, we have advised one of the leading
and how do you intend to manage them?
US private equity firms on regulatory capital issues
The challenge is the uncertainty on European
revolving around its bid to take over a European bank. We
sovereign risk and its impact on credit and other
have also been mandated to provide advisory (valuations,
markets. While a bit of volatility is good to spur an
stress testing, restructuring proposals) on about $20bn
active trading market, too much uncertainty leads
of assets for half a dozen institutions over the past year.
to low volumes of flow trades and a moribund
Furthermore, we have been active in structuring funding
primary market.
and regulatory capital release transactions.
Regarding opportunities, we expect a wave of asset
disposals from banks and public bodies as well as a
06 | www.quantifisolutions.com
7. A Quantifi Client
significant pickup in M&A transactions in the financial Sometimes flow trading is the main revenue generator
sector. StormHarbour is very well positioned to for the firm because clients are particularly active and
assist governments, public sector entities and banks want to either liquidate positions or acquire risk. More
because we have a combination of skills in financial recently the volatility has frozen a lot of the flow activity
assets, real estate as well as infrastructure finance, and it was nice to see other areas of the firm, primarily
which will be the bulk of the sales to come. advisory and client capital raisings take over. We are
having a very good year so far. That differentiates us
Looking ahead, what market developments significantly from small advisory shops or pure brokers
do you anticipate? who are relying only on one business line. That is also
Regulatory pressures are going to penalise banks reflected in our advice: because we have both advisory
significantly in particular for structured credit. and execution capabilities, we can recommend solutions
Furthermore their difficulties in securing cheap long that are really actionable, not purely theoretical.
term funding will lead banks to retreat again from
commercial real estate, long term corporate lending “ While a bit of volatility is good
and infrastructure financing. This is a great opportunity
to spur an active trading market,
for us to get real money clients involved in these markets
and arrange transactions that bring alternative funding too much uncertainty leads to
providers to banks. We also expect to increase our low volumes of flow trades and a
market share in secondary structured credit trading moribund primary market.”
as banks progressively step back due to increased
capital requirements. What differentiates us from banks is mostly the fact
that we work for clients and not for our own book. So
How does StormHarbour differentiate itself our advice is not tainted by whatever legacy position
from its competitors? we may have, and because we act as arranger and
Diversification is key. StormHarbour has geographical placement agent on structured trades, rather than as
diversification – we are active in the US, Europe and counterparty, the real economics of the deals are much
Asia – and also product and services diversification. more transparent to our clients.
www.quantifisolutions.com | 07