Counterparty Risk, Netting, Close-out, and Margin
Free GARP FRM Part II lesson in Credit Risk Measurement and Management. 19 min read, ~2,848 words.
Counterparty risk differs from lending risk: exposure is bilateral (either side can owe) and stochastic (depends on future market moves). EAD is not face value; it is the in-the-money replacement value at default. Exposure metrics: CE (today), EE (mean future), PFE (95th percentile), EPE (time-weighted EE), EEPE (time-weighted EEE), and...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
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