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@article{1386107,
author = {Zlatošová, Silvie and Křivánková, Lenka},
article_location = {Brno},
article_number = {3},
doi = {http://dx.doi.org/10.11118/actaun201765031015},
keywords = {counterparty credit risk; credit valuation adjustment; probability of default; interest rate swaps; yield curve; Hull-White model; Monte Carlo simulations; credit exposure},
language = {eng},
issn = {1211-8516},
journal = {Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis},
title = {Modelling Counterparty Credit Risk in Czech Interest Rate Swaps},
url = {https://acta.mendelu.cz/65/3/1015/},
volume = {65},
year = {2017}
}
TY - JOUR
ID - 1386107
AU - Zlatošová, Silvie - Křivánková, Lenka
PY - 2017
TI - Modelling Counterparty Credit Risk in Czech Interest Rate Swaps
JF - Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis
VL - 65
IS - 3
SP - 1015-1022
EP - 1015-1022
PB - Mendelova univerzita v Brně
SN - 12118516
KW - counterparty credit risk
KW - credit valuation adjustment
KW - probability of default
KW - interest rate swaps
KW - yield curve
KW - Hull-White model
KW - Monte Carlo simulations
KW - credit exposure
UR - https://acta.mendelu.cz/65/3/1015/
L2 - https://acta.mendelu.cz/65/3/1015/
N2 - 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.
ER -
ZLATOŠOVÁ, Silvie a Lenka KŘIVÁNKOVÁ. Modelling Counterparty Credit Risk in Czech Interest Rate Swaps. \textit{Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis}. Brno: Mendelova univerzita v Brně, 2017, roč.~65, č.~3, s.~1015-1022. ISSN~1211-8516. Dostupné z: https://dx.doi.org/10.11118/actaun201765031015.
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