Unveiling the Hidden Risks of OTC Derivatives: A Game Changer!
The article discusses how OTC derivatives are valued and the risks they pose. It looks at how to measure and manage these risks, including credit valuation adjustments and counterparty credit risk. The researchers also explore the risks associated with taking collateral. They highlight the importance of understanding the link between exposure and counterparty credit quality. Banks use models to calculate regulatory capital requirements based on these risks.