Counterparty Credit Risk Analysis

We provide our clients a state of the art solution for counterparty credit risk analysis. Market events, rating migration, default events and recovery possibilities driving the values of positions can all be simulated over time either simultaneously, one by one or group by group. This helps users to obtain a complete quantification of possible valuation outcomes in a very large number of states of the world. At the same time, contributions to valuation changes of various factors and factor groups can be determined.

In all valuation procedures the best practice full valuation approach omitting all shortcuts is followed. Lifetime cash flows implied by financial contracts in all simulated states are used as the basis of valuations. To obtain consistent valuations these simulated cash flows are discounted to the present time by the relevant risk free rate. This approach is particularly prudent in analysis of complex credit derivatives products such as synthetic CDOs where (static) one step valuation procedures such as the one year time horizon copula approach yielded notoriously misleading value and risk estimates e.g. in the year 2008.

Analysis results can be viewed from different perspectives. Current values of cash flows at each (and any) time point and at user-specified confidence levels are available for reports and for further analysis and use in external applications. Similarly, paths of current values of cash flows on contract and on different portfolio levels are available. Furthermore, net present values of cash flows, contracts and portfolios can be obtained and their probability distributions analysed in detail in the R/V Platform and in possible external applications.