The Measurement And Control Of Counterparty Credit Risk

After the financial crisis, the Counterparty Credit Risk is considered one of most reasons to cause the crisis. And the prevention of Counterparty Credit Risk has become the hot topics between regulatory authorities and international organizations. The Basel Committee on banking supervision issued new Basel III, which one of the focuses is about the reform of Counterparty Credit Risk. Basel Committee began to study on Counterparty Credit Risk in 1998, thinking that some off-balance-sheet activities related to foreign exchange, interest rate face Counterparty Credit Risk. The Basel Committee formally introduced the concept of counterparty credit risk, and then put forward the relevant measurement model in Basel II. There are some defects in the Basel I and II,which is exposed in the crisis, so the regulation and measurement of Counterparty Credit Risk is one of the focuses, and the Basel Committee introduced the Credit Valuation Adjustment Model, and improved or replaced existing measurement model based on the principle of consistency, simplicity, and prudential. The Basel Committee required using Standard Method to measure the risk of default, which replaced the Non-Internal Model method, the Current Exposure Method and Standard Method, and making it the parallel measurement model of Internal Model Method.Over-the-counter Derivatives Trading and Securities Margin Trading are the root of Counterparty Credit Risk, so regulating these two market, and strengthening supervision are the most efficient measures to prevent the Counterparty Credit Risk.Now the Derivatives Market and Securities Financing Market in our country is still in its infancy, but with the development of Interest Rate Marketization, the Internationalisation of the Renminbi, Capital Account liberalization, these two market will developed quickly. Therefore, it is very important to prevent the Counterparty Credit Risk effectively.Based on the reports of Basel Committee on the management of Counterparty Credit Risk, this paper arranges the study of Counterparty Credit Risk of Basel Committee, and summarizes the definition and characteristics of Counterparty Credit Risk. At the same time, it systematically summarizes the measurement frame and model of Counterparty Credit Risk based on the reports released by the Basel Committee.Besides, combining theoretical model and empirical analysis, it measures the size of theCounterparty Credit Risk on the listed companies through the KMV Model. Finally,according to the empirical results, it studies the control of Counterparty Credit Risk.