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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. |
