Firms active in OTC derivative markets are exposed to counterparty credit risk, because a counterparty to a financial contract may default prior to the expiration date of the contract and therefore fail to perform its payment obligations. Counterparty exposure specifies the potential amount of money that could be lost in the event of a default. This thesis gives an introduction in measuring and modelling counterparty exposure for interest rate derivatives. The first objective is to provide an overview of appropriate exposure measures and their corresponding exposure profiles. Since fair values of derivative instruments change unpredictably over time, only their current exposure is known, while future exposure is uncertain. In general, future exposure is determined by means of Monte Carlo simulation. However this method is very time-consuming. Therefore we aim to derive semi-analytical valuation formulas that allow quantifying future exposure at different valuation dates. In this thesis analytical expressions are derived for certain interest rate derivatives in the Vasicek and the CIR model.     «

Firms active in OTC derivative markets are exposed to counterparty credit risk, because a counterparty to a financial contract may default prior to the expiration date of the contract and therefore fail to perform its payment obligations. Counterparty exposure specifies the potential amount of money that could be lost in the event of a default. This thesis gives an introduction in measuring and modelling counterparty exposure for interest rate derivatives. The first objective is to provide an ov...     »