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The New Standardized Approach for Measuring Counterparty Credit Risk
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2014 (English)Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

This study investigates the differences in calculationof exposure at default between the current exposure method (CEM) and the newstandardized approach for measuring counterparty credit risk exposures (SA-CCR)for over the counter (OTC) derivatives. The study intends to analyze theconsequence of the usage of different approaches for netting as well as the differencesin EAD between asset classes. After implementing both models and calculating EADon real trades of a Swedish commercial bank it was obvious that SA-CCR has ahigher level of complexity than its predecessor. The results from this studyindicate that SA-CCR gives a lower EAD than CEM because of the higherrecognition of netting but higher EAD when netting is not allowed. Foreignexchange derivatives are affected to a higher extent than interest ratederivatives in this particular study. Foreign exchange derivatives got lowerEAD both when netting was allowed and when netting was not allowed under SA-CCR.A change of method for calculating EAD from CEM to SA-CCR could result in lowerminimum capital requirements

Place, publisher, year, edition, pages
TRITA-MAT-E, 2014:28
National Category
Probability Theory and Statistics
URN: urn:nbn:se:kth:diva-145757OAI: diva2:721675
Subject / course
Mathematical Statistics
Educational program
Master of Science - Industrial Engineering and Management
Available from: 2014-06-04 Created: 2014-05-31 Last updated: 2014-06-04Bibliographically approved

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