Explicit expressions to counterparty credit exposures for Forward and European Option

doi:10.1016/j.najef.2019.101130

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	Explicit expressions to counterparty credit exposures for Forward and European Option
	Li, Shuang 1,2; Peng, Cheng 1,2; Bao, Ying 3; Zhao, Yanlong 1,2
	2020-04-01
发表期刊	NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE
ISSN	1062-9408
卷号	52 页码:14
摘要	With the fast development of over the counter (OTC) derivatives market, counterparty credit risk (CCR) has become one of the main risks that can even affect the survival of banks. As a result, it is essential to measure and manage CCR exposures. Giant financial institutions apply numerical methods such as the Monte Carlo to calculate exposures. However, the numerical methods usually cost a significant amount of time, and some advanced algorithms like distributed and parallel processing are usually used to accelerate the calculation. Nevertheless, for small banks, they cannot afford the calculation cost. In order to make small banks manage CCR more efficiently, this paper puts forward analytic models to measure CCR exposures and derives the explicit expressions to exposures for Forward contract and European Option, which are represented in the OTC market. The explicit expressions to credit exposures for Forward contract are derived under the assumption that the underlying market risk factors follow Geometric Brown Motion. For European Option case, the problem turns to be difficult since the analytic formula involves double-definite integral of Gaussian function that cannot be simplified into elementary functions. An approximating normal distribution function with integrability is proposed, then the analytic approximations of European Call Option's credit exposures and maximum errors are presented.
关键词	Counterparty credit exposure Explicit expressions Forward European Option
DOI	10.1016/j.najef.2019.101130
收录类别	SCI
语种	英语
WOS研究方向	Business & Economics
WOS类目	Business, Finance ; Economics
WOS记录号	WOS:000526121400018
出版者	ELSEVIER SCIENCE INC
引用统计
文献类型	期刊论文
条目标识符	http://ir.amss.ac.cn/handle/2S8OKBNM/51128
专题	中国科学院数学与系统科学研究院
通讯作者	Zhao, Yanlong
作者单位	1.Acad Math & Syst Sci, Chinese Acad Sci, KLSC, Beijing 100190, Peoples R China 2.Univ Chinese Acad Sci, Sch Math Sci, Beijing 100049, Peoples R China 3.Ind & Commercial Bank China, Beijing 100032, Peoples R China
推荐引用方式 GB/T 7714	Li, Shuang,Peng, Cheng,Bao, Ying,et al. Explicit expressions to counterparty credit exposures for Forward and European Option[J]. NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE,2020,52:14.
APA	Li, Shuang,Peng, Cheng,Bao, Ying,&Zhao, Yanlong.(2020).Explicit expressions to counterparty credit exposures for Forward and European Option.NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE,52,14.
MLA	Li, Shuang,et al."Explicit expressions to counterparty credit exposures for Forward and European Option".NORTH AMERICAN JOURNAL OF ECONOMICS AND FINANCE 52(2020):14.