ISDA 2002, The ISDA Master Agreement Ten Years On

Fusaro, Peter C.; James, Tom

doi:10.1057/9780230510968_11

Energy Hedging in Asia 2005

DOI: 10.1057/9780230510968_11

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ISDA 2002, The ISDA Master Agreement Ten Years On

Peter C. Fusaro¹,

Tom James²

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Measuring Counterparty Credit Exposure to a Margined Counterparty

Gibson

2005

FEDS

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Firms active in OTC derivative markets increasingly use margin agreements to reduce counterparty credit risk. Making several simplifying assumptions, I use both a quasianalytic approach and a simulation approach to quantify how margining reduces counterparty credit exposure. Margining reduces counterparty credit exposure by over 80 percent, using baseline parameter assumptions. I show how expected positive exposure (EPE) depends on key terms of the margin agreement and the current mark-to-market value of the portfolio of contracts with the counterparty. I also discuss a possible shortcut that could be used by firms that can model EPE without margin but cannot achieve the higher level of sophistication needed to model EPE with margin.

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Measuring Counterparty Credit Exposure to a Margined Counterparty

Gibson

2005

FEDS

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ISDA 2002, The ISDA Master Agreement Ten Years On

Cited by 1 publication

References 0 publications

Measuring Counterparty Credit Exposure to a Margined Counterparty

Measuring Counterparty Credit Exposure to a Margined Counterparty

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