| dc.description.abstract | The main reason for the financial crisis 2008 in the worldwide banking systems
was the ignorance of the counterparty credit risk (CCR). In response, the Basel
Committee on Banking Supervision introduced a new credit valuation adjustment
(CVA) capital framework to mitigate this risk and also strengthen capital profile of
banks. The objective of the thesis was to investigate an approach to an exposure at
default (EAD), which is the most essential input for many capital frameworks in Basel
regulations, especially for the CVA capital one. After a few chapters providing some
adjacent conceptual background, the main consideration was about the calculation
of the EAD for the OTC interest rate swap (IRS) contracts portfolio under current
exposure method. The EAD calculation was totally executed by an automatic calculator,
which was self-programmed by the thesis’ author in R programming language.
Also, a valuation of mark-to-market value of the IRS and the construction of a
zero-curve for discounting swap’s cash flows were fully analysed. The data sample
for EAD calculation was a generated portfolio of the OTC IRS contracts referenced
by some characteristics of the standardized contracts in the US exchange. Using the
market data of USD-Libor spot rate and Eurodollar Futures (April 27, 2017), I could
construct the zero-curve by combining the linear interpolation and bootstrapping
methods for specifying a mark-to-market value of each swap contract, and hence
the EAD. Finally, the benefit of netting and collateral on EAD value was proven by
experimental results and comparisons.
Keywords: Basel III, Credit Valuation Adjustment, Counterparty Credit Risk, Exposure
at Default, Current Exposure Method, OTC Derivatives, Interest Rate Swap,
Netting, Collateral.
v | en_US |
