NOVARUM :: Counterparty Credit Risk

Counterparty Credit Risk

Our Services

The management of counterparty credit risk (“CCR”) is mathematically complex, systems intensive, and organizationally challenging. Multiple functions are involved in the origination, measurement, valuation and reporting of CCR, from Derivatives Origination, Credit Risk Management, Systems Architecture, Quantitative Research, Accounting Policy, Regulatory Reporting, to Finance and Treasury. To be effective, senior management must design and implement coherent procedures, processes and policies that clearly define responsibilities and align interests between these functions, to eliminate duplication, promote consistency, accountability and transparency.

The following abstracts provide an introduction to the unique challenges created by CCR and an overview of the strategies employed by leading market practitioners to manage this esoteric artifact of the OTC derivatives market.

To compete effectively in the OTC derivatives market, dealers must proactively manage and hedge the CCR they originate. Without the ability to recycle scarce credit and capital resources, OTC derivative dealers will inevitably face a deterioration in underlying profitability and operating leverage.