EduMarkets Counterparty Risk

The counterparty risk module covers the risk that the other side of a derivatives trade defaults before the trade settles, and the costs of that exposure. Users simulate exposure profiles over the life of a trade and calculate the credit valuation adjustment (CVA), which prices the risk of default. The module shows how netting, collateral and initial margin reduce the exposure, and compares cleared trades with bilateral ones. Separate pages cover the funding and capital costs of a trade, and wrong-way risk, where the exposure rises as the credit quality of the counterparty worsens. These valuation adjustments, known as xVA, account for much of the difference between the risk-free price of a derivative and the price a dealer quotes.