Modelling Counterparty Credit Risk in Czech Interest Rate Swaps

Kód výsledku v 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>

Výsledek na webu

<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>

Jazyk výsledku

angličtina

Název v původním jazyce

Modelling Counterparty Credit Risk in Czech Interest Rate Swaps

Popis výsledku v původním jazyce

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.

Název v anglickém jazyce

Modelling Counterparty Credit Risk in Czech Interest Rate Swaps

Popis výsledku anglicky

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.

Druh

J_SC - Článek v periodiku v databázi SCOPUS

CEP obor

—

OECD FORD obor

50600 - Political science

Projekt

—

Návaznosti

S - Specificky vyzkum na vysokych skolach

Rok uplatnění

2017

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis

ISSN

1211-8516

e-ISSN

—

Svazek periodika

65/2017

Číslo periodika v rámci svazku

3

Stát vydavatele periodika

CZ - Česká republika

Počet stran výsledku

8

Strana od-do

1015-1022

Kód UT WoS článku

—

EID výsledku v databázi Scopus

2-s2.0-85021837421