Counterparty Risk under Basel III
|Author:||Mgr. Petr Macek|
|Year:||2013 - summer|
|Leaders:|| prof. PhDr. Petr Teplý Ph.D.
|Work type:|| Finance, Financial Markets and Banking
|Awards and prizes:|
|Abstract:||The aim of this thesis is to address the implications of Basel III regulation on
counterparty credit risk. We analysed the development of OTC market, we
addressed systemic risk and the way how central counterparties could mitigate
or spread the contagion among banks. We used simulated data to develop a
stress test model to nd out the impact of counterparty credit risk on banks'
capital requirements, in case the interest rate increased extensively. Six pos-
sible scenarios of interest rate levels were developed with ascending order of
the IR level. From these scenarios we computed the exposure levels and credit
valuation adjustment (CVA) as the market value of counterparty credit risk.
We came to the following conclusions: (1) Czech banks have enough capital to
withstand any interest rate increase in any scenario. (2) Banks with high expo-
sure to derivatives like Bank of America, Citibank and JP Morgan would face
severe problems if the interest rate increased. (3) There is no direct correlation
between credit valuation adjustment and interest rate, the CVA increases faster
with the increase of the interest rate.