Measuring and managing counterparty credit risk has become central to the sound risk management of banks’ trading books. The 2008 crisis led to a sharpened focus on XVA, which includes measurement of the valuation impact of credit, collateral, capital and funding. Due to the dynamic nature of derivatives contracts, measuring counterparty and XVA risk requires highly computationally intensive algorithms. Regulations such as IMM enforce strict adherence to calculation standards for bank that wish to reduce their capital costs by using sophisticated internal models.
We enable clients to accurately model and quantify trading book credit exposure to regulatory IMM standards, for portfolios with even the most exotic products. We build frameworks to report exposures and ensure they remain in line with the clients’ risk appetite frameworks. We are deeply involved with implementing, testing and validating the underlying valuation models and Monte Carlo simulation processes used to calculate counterparty credit risk and XVA metrics.