<abstract xmlns="http://www.w3.org/1999/xhtml"><p> In recent years, the counterparty credit risk measure, namely the default risk in over-the-counter (OTC) derivatives contracts, has received great attention by banking regulators, specifically within the frameworks of Basel II and Basel III. More explicitly, to obtain the related risk figures, one is first obliged to compute intermediate output functionals related to the mark-to-market position at a given time no exceeding a positive and finite time horizon. The latter implies an enormous amount of computational effort is needed, with related highly time consuming procedures to be carried out, turning out into significant costs. To overcome the latter issue, we propose a smart exploitation of the properties of the (local) time spent by the Brownian motion close to a given value.</p></abstract>

In recent years, the counterparty credit risk measure, namely the default risk in over-the-counter (OTC) derivatives contracts, has received great attention by banking regulators, specifically within the frameworks of Basel II and Basel III. More explicitly, to obtain the related risk figures, one is first obliged to compute intermediate output functionals related to the mark-to-market position at a given time no exceeding a positive and finite time horizon. The latter implies an enormous amount of computational effort is needed, with related highly time consuming procedures to be carried out, turning out into significant costs. To overcome the latter issue, we propose a smart exploitation of the properties of the (local) time spent by the Brownian motion close to a given value.

Estimating the Counterparty Risk Exposure by Using the Brownian Motion Local Time

International Journal of Applied Mathematics and Computer Science

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

In recent years, the counterparty credit risk measure, namely the default risk in over-the-counter (OTC) derivatives contracts, has received great attention by...

Estimating the Counterparty Risk Exposure by Using the Brownian Motion Local Time

Publié en ligne: 08 juil. 2017

Pages: 435 - 447

Reçu: 30 nov. 2016

Accepté: 04 févr. 2017

DOI: https://doi.org/10.1515/amcs-2017-0030

Mots clés
counterparty credit risk, exposure at default, local times Brownian motion, over-the-counter derivatives, Basel financial framework

© by Luca Di Persio

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Estimating the Counterparty Risk Exposure by Using the Brownian Motion Local Time

Publié en ligne: 08 juil. 2017

Pages: 435 - 447

Reçu: 30 nov. 2016

Accepté: 04 févr. 2017

DOI: https://doi.org/10.1515/amcs-2017-0030

Mots cléscounterparty credit risk, exposure at default, local times Brownian motion, over-the-counter derivatives, Basel financial framework

© by Luca Di Persio

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Mots clés
counterparty credit risk, exposure at default, local times Brownian motion, over-the-counter derivatives, Basel financial framework