Modelling Counterparty Credit Risk in Czech Interest Rate Swaps
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216224%3A14560%2F17%3A00097240" target="_blank" >RIV/00216224:14560/17:00097240 - isvavai.cz</a>
Result on the web
<a href="http://dx.doi.org/10.11118/actaun201765031015" target="_blank" >http://dx.doi.org/10.11118/actaun201765031015</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.11118/actaun201765031015" target="_blank" >10.11118/actaun201765031015</a>
Alternative languages
Result language
angličtina
Original language name
Modelling Counterparty Credit Risk in Czech Interest Rate Swaps
Original language description
According to the Basel Committee’s estimate, three quarters of counterparty credit risk losses during the financial crisis in 2008 originate from credit valuation adjustment’s losses and not from actual defaults. Therefore, from 2015, the Third Basel Accord (EU, 2013a) and (EU, 2013b) instructed banks to calculate the capital requirement for the risk of credit valuation adjustment (CVA). Banks are trying to model CVA to hold the prescribed standards and also reach the lowest possible impact on their profit. In this paper, we try to model CVA using methods that are in compliance with the prescribed standards and also achieve the smallest possible impact on the bank’s earnings. To do so, a data set of interest rate swaps from 2015 is used. The interest rate term structure is simulated using the Hull-White one-factor model and Monte Carlo methods. Then, the probability of default for each counterparty is constructed. A safe level of CVA is reached in spite of the calculated the CVA achieving a lower level than CVA previously used by the bank. This allows a reduction of capital requirements for banks.
Czech name
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Czech description
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Classification
Type
J<sub>SC</sub> - Article in a specialist periodical, which is included in the SCOPUS database
CEP classification
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OECD FORD branch
50600 - Political science
Result continuities
Project
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Continuities
S - Specificky vyzkum na vysokych skolach
Others
Publication year
2017
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů
Data specific for result type
Name of the periodical
Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis
ISSN
1211-8516
e-ISSN
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Volume of the periodical
65/2017
Issue of the periodical within the volume
3
Country of publishing house
CZ - CZECH REPUBLIC
Number of pages
8
Pages from-to
1015-1022
UT code for WoS article
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EID of the result in the Scopus database
2-s2.0-85021837421