John Wiley & Sons · 2012
Counterparty Credit Risk and Credit Value Adjustment
A Continuing Challenge for Global Financial Markets, 2nd Edition
Level · Institutional / advanced
Editorial summary
In 'Counterparty Credit Risk and Credit Value Adjustment', Jon Gregory offers an in-depth exploration of the complexities surrounding counterparty credit risk, a critical area of focus for financial institutions post-2008 crisis. This title stands out on the shelf as a practical guide, complementing more theoretical texts on risk management and derivatives by providing actionable insights and methodologies.
The book is structured to guide readers through the emergence of counterparty risk, detailing how institutions are adapting their risk management frameworks. It covers essential topics such as credit value adjustment (CVA), debit value adjustment (DVA), and the implications of wrong-way risk, ensuring that practitioners can effectively navigate these challenges in their daily operations.
Mathematically, the text delves into the quantitative aspects of risk management, making it suitable for analysts and risk managers who require a solid grounding in both theory and application. The book also discusses portfolio management strategies and hedging techniques, equipping readers with the tools necessary to mitigate counterparty risk effectively.
Additionally, Gregory addresses the design and benefits of central clearing, a significant development aimed at reducing systemic risk in financial markets. This aspect is particularly relevant for treasury and risk teams looking to enhance their operational resilience.
While the book serves as a valuable resource, it is important to note that it has been superseded by 'The XVA Challenge', which may offer more updated insights. However, this edition remains a critical reference for those looking to understand the foundational aspects of counterparty credit risk management.
About this book
Jon Gregory's 'Counterparty Credit Risk and Credit Value Adjustment' is a detailed examination of the critical issues surrounding counterparty credit risk in the financial markets. The book is organised to provide readers with a clear understanding of how counterparty risk has evolved since the financial crisis, particularly in the wake of the Lehman Brothers collapse, which exposed significant vulnerabilities in risk management practices across institutions.
The text begins by outlining the fundamental concepts of counterparty risk, including the definitions and implications of credit value adjustment (CVA) and debit value adjustment (DVA). Gregory meticulously explains how these adjustments are calculated and their significance in pricing and managing derivatives. This foundational knowledge is essential for analysts and risk managers who must navigate the complexities of financial instruments.
As the book progresses, it delves into advanced topics such as portfolio management strategies and the hedging of various risks associated with counterparty credit. The author provides practical methodologies that practitioners can apply in their daily operations, ensuring that the content is not only theoretical but also applicable in real-world scenarios.
Furthermore, the discussion on central clearing is particularly relevant for teams involved in treasury operations and risk management. Gregory highlights how central clearing can mitigate systemic risk and enhance the stability of financial markets, making this section crucial for professionals tasked with compliance and regulatory adherence.
Readers can expect to gain a robust understanding of the mathematical and policy frameworks that underpin counterparty credit risk management, equipping them with the necessary skills to implement effective risk mitigation strategies within their organisations.
Why it matters
Understanding counterparty credit risk is essential for maintaining risk limits, pricing derivatives accurately, and ensuring compliance with evolving regulatory standards. This book provides the necessary insights and methodologies that market professionals need to effectively manage and mitigate these risks, thereby enhancing the stability and resilience of financial institutions.
Best for
This book is best suited for analysts and risk managers who are involved in derivatives trading and credit risk assessment. It is also valuable for policy makers and academics seeking a practical understanding of counterparty risk management.
Not ideal for
It may not be ideal for those seeking a purely theoretical exploration of risk management, as it focuses heavily on practical applications and methodologies. Additionally, readers looking for the most current developments in the field may find the content somewhat dated, given that it has been superseded by a more recent publication.
Key themes
counterparty-credit-risk|credit-value-adjustment|risk-management|derivatives|portfolio-management|central-clearing|financial-institutions|systemic-risk|hedging|regulatory-compliance
Strengths
One of the key strengths of this book is its practical approach to counterparty credit risk, making complex concepts accessible to practitioners. Gregory's extensive experience in the field lends credibility to the methodologies presented, and the structured layout allows readers to build their understanding progressively. The inclusion of real-world applications and case studies enhances the relevance of the material, ensuring that readers can apply the concepts effectively in their roles.
Limitations
A notable limitation is that the book may not reflect the most current trends and practices in counterparty credit risk management, as it has been superseded by a newer edition. Readers seeking the latest developments in the field may need to supplement their reading with more recent literature. Additionally, while the mathematical detail is appropriate for an institutional audience, those without a strong quantitative background may find some sections challenging to fully grasp.
Related books
Shared topics with this title.
FX Cash Products: Spot, Forwards, Swaps & Non-Deliverable Forwards
Practitioner guide for treasury and markets
Luigi Pascal Rondanini · David Axtell · 2026 · Rondanini
Spot, forwards, swaps, and NDFs for corporate treasurers, traders, and risk managers—operations-first, institutionally framed.
- FX
- Treasury
- Risk management
Pricing and Trading Interest Rate Derivatives
A Practical Guide to Swaps
J. Hamish M. Darbyshire · 2022 · Aitch & Dee
A swaps trader’s bridge from curve building to book management: plain-vanilla and cross-currency IR swaps, risk, funding/CSA colour, and the distance between classroom models and how desks actually work. Third-edition material includes practical Python illustrations alongside the narrative.
- Derivatives
- Fixed income
- Interest rates
Options, Futures, and Other Derivatives
Global edition
John C. Hull · 2021 · Pearson
The standard graduate-level derivatives text.
- Derivatives
- Risk management
- Quantitative finance
Modern Computational Finance
Scripting for Derivatives and xVA
Antoine Savine · Jesper Andreasen · 2021 · John Wiley & Sons
Second volume: building professional derivative scripting systems—cash-flow representation, branching, American Monte Carlo hooks, and how scripting supports xVA-style portfolio interrogation. Written for quant devs and library architects who must ship maintainable payoff DSLs.
- Derivatives
- Risk management
- Quantitative finance