scholarly journals COUNTERPARTY RISK PRICING: IMPACT OF CLOSEOUT AND FIRST-TO-DEFAULT TIMES

2012 ◽  
Vol 15 (06) ◽  
pp. 1250039 ◽  
Author(s):  
DAMIANO BRIGO ◽  
CRISTIN BUESCU ◽  
MASSIMO MORINI
Keyword(s):  
Counterparty Risk ◽  
Contagion Effect ◽  
Default Time ◽  
Pricing Error ◽  
Risk Pricing ◽  
Credit Valuation Adjustment ◽  
Default Contagion ◽  
The Impact

In the absence of a universally accepted procedure for the credit valuation adjustment (CVA) calculation, we compare a number of different bilateral counterparty valuation adjustment (BVA) formulas. First we investigate the impact of the choice of the closeout convention used in the formulas. Important consequences on default contagion manifest themselves in a rather different way depending on which closeout formulation is used (risk-free or replacement), and on default dependence between the two entities in the deal. Second we compare the full bilateral formula with an approximation that is based on subtracting two unilateral credit valuation adjustment (UCVA) formulas. Although the latter might be attractive for its instantaneous implementation once one has a unilateral CVA system, it ignores the impact of the first-to-default time, when closeout procedures are ignited. We illustrate in a number of realistic cases both the contagion effect due to the closeout convention, and the CVA pricing error due to ignoring the first-to-default time.

PRICING COUNTERPARTY RISK INCLUDING COLLATERALIZATION, NETTING RULES, RE-HYPOTHECATION AND WRONG-WAY RISK

2013 ◽  
Vol 16 (02) ◽  
pp. 1350007 ◽  
Author(s):  
DAMIANO BRIGO ◽  
AGOSTINO CAPPONI ◽  
ANDREA PALLAVICINI ◽  
VASILEIOS PAPATHEODOROU
Keyword(s):  
Interest Rate ◽  
Credit Derivatives ◽  
Credit Default Swaps ◽  
Credit Spread ◽  
Counterparty Risk ◽  
Default Correlation ◽  
Dynamical Models ◽  
Credit Default ◽  
The Impact

This article is concerned with the arbitrage-free valuation of bilateral counterparty risk through stochastic dynamical models when collateral is included, with possible rehypothecation. The payout of claims is modified to account for collateral margining in agreement with International Swap and Derivatives Association (ISDA) documentation. The analysis is specialized to interest-rate and credit derivatives. In particular, credit default swaps are considered to show that a perfect collateralization cannot be achieved under default correlation. Interest rate and credit spread volatilities are fully accounted for, as is the impact of re-hypothecation, collateral margining frequency, and dependencies.

scholarly journals The Impact of Underlying Market Closure on Futures Market Liquidity: Evidence from China

2012 ◽  
Author(s):  
Wang Chun Wei ◽  
Alex Frino
Keyword(s):  
Futures Market ◽  
Market Liquidity ◽  
Stock Index ◽  
Stock Index Futures ◽  
Contagion Effect ◽  
Index Futures ◽  
Empirical Results ◽  
Open Session ◽  
The Impact ◽  
Closure Theory

This study investigates the trading activity of Chinese stock index futures, recently introduced at the open and close of the underlying trading. We document the impact of the underlying spot on the futures market liquidity as well as volatility as discussed in earlier works on market closure theory. Our empirical results support previous literature on the impact of the underlying, particularly during the open session, as a contagion effect, which is clearly at play. We find significant U-shaped patterns in liquidity factors and intraday volatility during open and close trades in the morning.  

Real estate risk, yield modelling and market sentiment: the impact on pricing in European office markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tony McGough ◽  
Jim Berry
Keyword(s):  
Real Estate ◽  
International Capital ◽  
Content Type ◽  
International Capital Markets ◽  
Real Estate Markets ◽  
Market Sentiment ◽  
Office Markets ◽  
Risk Pricing ◽  
Changes In Risk ◽  
The Impact

PurposeThe financial and economic turmoil that resulted from the Global Financial Crisis (GFC), included a marked increase in the volatility in real estate markets. Property asset prices were impacted by the real economy and market sentiment, particularly concerning the determination of risk. In an economic downturn, the perception of investment risk becomes increasingly important relative to overall total returns, and thus impacts on yields and performance of assets. In a recovery phase, and particularly within an environment of historically low government bonds, risk and return compete for importance. The aim of this paper is to assess the interrelationships and impacts on pricing between real estate risk, yield modelling outcomes and market sentiment in selective European city office markets.Design/methodology/approachThis paper specifically considers the modelling of commercial property pricing in relation to the appetite for risk in the financial markets. The paper expands on previous work by determining a specific measure of risk pricing in relationship to changing financial market sentiment. The methodology underpinning the research specifically examines the scope for using national and international risk pricing within specific real estate markets in Europe.FindingsThis paper addresses whether there is a difference between the impact of risk on the pricing of real estate in international versus regional cities in Europe. The analysis, therefore, determines which city centre office markets in Europe have been most impacted by globalisation including the magnitude on real estate prices and market volatility. The outcome of the paper provides important insights into how changes in risk preferences in the international capital markets have driven and continues to drive yield movements under different market conditions.Research limitations/implicationsThe paper considers the driving forces which have led to the volatile movements of yields, emanating from the GFC.Practical implicationsThis paper considers the property market effects on pricing of commercial real estate and the drivers in selected European cities.Originality/valueThe outcome of the paper provides important insights into how changes in risk preferences in the international capital markets have driven and continue to drive the yield movements in different real estate markets in Europe.

Economic Slowdown and the Indian Corporate Sector

2009 ◽  
Vol 34 (3) ◽  
pp. 53-58
Author(s):  
Avinash Paranjape
Keyword(s):  
Global Economy ◽  
Foreign Currency ◽  
Contagion Effect ◽  
Corporate Sector ◽  
Related Services ◽  
Global Recession ◽  
The Face ◽  
Indian Banks ◽  
The Impact ◽  
Financial Issues

In the face of the complexities created by the turbulence, volatility, and uncertainty in the global economy, the Indian corporate sector finds itself in a state of flux. Avinash Paranjape sees the impact of the global crisis on the Indian industry as a contagion effect, being in the form of a slowdown. From the study emerge four distinct patterns of the effect of the slowdown on Indian firms. While the firms exposed to foreign currency have become victims of volatility, those in the IT-related services faced export blues. The firms in the financial and real estate sectors experienced the burst bubble syndrome, whereas the acquirers faced multiple financial issues. Despite the prevalence of pockets of weakness, in general, the author finds the Indian banks, financial institutions, and the corporate sector as strong and less exposed to the vagaries of the global recession

scholarly journals COLLATERALIZED CVA VALUATION WITH RATING TRIGGERS AND CREDIT MIGRATIONS

2013 ◽  
Vol 16 (02) ◽  
pp. 1350009 ◽  
Author(s):  
TOMASZ R. BIELECKI ◽  
IGOR CIALENCO ◽  
ISMAIL IYIGUNLER
Keyword(s):  
Credit Ratings ◽  
Counterparty Risk ◽  
Credit Valuation Adjustment ◽  
Rating Transitions ◽  
Markovian Approach

In this paper we discuss the issue of computation of the bilateral credit valuation adjustment (CVA) under rating triggers, and in presence of ratings-linked margin agreements. Specifically, we consider collateralized OTC contracts, that are subject to rating triggers, between two parties — an investor and a counterparty. Moreover, we model the margin process as a functional of the credit ratings of the counterparty and the investor. We employ a Markovian approach for modeling of the rating transitions of the two parties to the contract. In this framework, we derive the representation for bilateral CVA. We also introduce a new component in the decomposition of the counterparty risky price: namely the rating valuation adjustment (RVA) that accounts for the rating triggers. We give two examples of dynamic collateralization schemes where the margin thresholds are linked to the credit ratings of the parties. Our results are illustrated via computation of various counterparty risk adjustments for a CDS contract and for an IRS contract.

scholarly journals SISTEM PENJAMINAN SIMPANAN (DEPOSIT INSURANCE SYSTEM) PADA INDUSTRI PERBANKAN INDONESIA

2019 ◽  
Vol 1 (2) ◽  
pp. 77-90
Author(s):  
Sjafruddin Sjafruddin
Keyword(s):  
Deposit Insurance ◽  
Insurance Premium ◽  
Bank Risk ◽  
Contagion Effect ◽  
Insurance System ◽  
Guarantee System ◽  
Deposit Insurance System ◽  
The Government ◽  
Public Costs ◽  
The Impact

Banking plays a very important role in the economy along with its function to channel funds from parties who have excess funds (surplus of funds) to those who need funds (lack of funds). If the banking industry does not work well, the economy will become inefficient and the expected economic growth will not be achieved. The risks that are always inherent in the financial and banking sectors, can trigger a crisis at any time and result in a collapse of the country's economy. To overcome the impact of the crisis, the government must pay quite large public costs. This article analyzes several important concepts, namely bank risk and the contagion effect, the operation of a deposit guarantee system that has been implemented in various countries after a financial crisis and how the deposit guarantee program is implemented in Indonesia. The results show that the Deposit Insurance System (DIS) can be implemented through law enforcement system, market discipline, political and economic freedom, low levels of corruption, strict regulations inbanking sector, setting an adequate deposit insurance premium based on the level of bank risk , and selective deposit guarantees. Keywords: Deposit Insurance System,Indonesia Deposit Insurance Corporation, Risk   Abstrak Perbankan memegang peran yang sangat penting dalan perekonoman seiring dengan fungsinya untuk menyalurkan dana dari pihak yang mempunyai kelebihan dana (surplus of funds) kepada pihak-pihak yang membutuhkan dana (lack of funds). Apabila industri perbankan tidak bekerja dengan baik, maka perekonomian menjadi tidak efisien dan pertumbuhan ekonomi yang diharapkan tidak akan tercapai. Risiko yang selalu melekat dalam sektor keuangan dan perbankan, dapat memicu terjadinya krisis sewaktu-waktu dan berakibat lumpuhnya ekonomi negara. Untuk menanggulangi dampak krisis tersebut, pemerintah harus mengeluarkan biaya publik cukup besar. Artikel ini menganalisis beberapa konsep penting, yaitu risiko bank dan  efek penularan (Contagion Effect),penyelenggaraan sistem penjaminan simpanan yang telah di implementasikan berbagai negara setelah terjadi krisis keuangan dan bagaimana implementasi program penjaminan simpanan di Indonesia.Hasilnya menunjukkan bahwaDeposit Insurance System (DIS) dapat diimplementasikan melalui sistem penegakan hukum yang kuat, disiplin pasar, kebebasan politik dan ekonomi, tingkat korupsi yang rendah, regulasi khususnya di bidang perbankan yang kuat, penetapan premi penjaminan simpanan yang memadai dan berdasarkan tingkat risiko bank, serta pemberian jaminan simpanan yang selektif. Kata Kunci:Deposit Insurance System, Lembaga Penjamin Simpanan, Risiko

scholarly journals The Impact of Herding on the Risk Pricing in the Egyptian Stock Exchange

2020 ◽  
Vol 11 (2) ◽  
pp. 19-37
Author(s):  
Mustafa Hussein Abd-Alla ◽  
Mahmoud Sobh
Keyword(s):  
Factor Model ◽  
Stock Exchange ◽  
Additional Risk Factor ◽  
Additional Risk ◽  
Behaviour Factor ◽  
Risk Pricing ◽  
Fama And French ◽  
The Impact ◽  
Egyptian Stock Exchange ◽  
Three Factor

We test the impact of herding behaviour on the risk pricing in the Egyptian Stock Exchange (EGX) by adding an additional risk factor reflecting herding behaviour to the Fama and French three-factor model. We construct a portfolio to mimic an additional risk factor related to herding behaviour, in addition to the original risk factors in the Fama and French three-factor model. The three-factor model will be tested in its original form and re-tested after adding the herding behaviour factor. The study is based on Hwang and Salmon methodology, in which the state space approach based on Kaman’s filter was used to measure herding behaviour. We used monthly excess stock returns of 50 stocks listed on the EGX from January 2014 to December 2018. The results do not support Fama and French model before and after adding the herding behaviour factor, therefore, there is no effect of herding behaviour on the risk pricing in the Egyptian Stock Exchange.

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