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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

  • Czech description

Classification

  • Type

    J<sub>SC</sub> - Article in a specialist periodical, which is included in the SCOPUS database

  • CEP classification

  • OECD FORD branch

    50600 - Political science

Result continuities

  • Project

  • 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

  • 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

  • EID of the result in the Scopus database

    2-s2.0-85021837421