Exposure: Difference between revisions
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{{g}}Your “[[exposure]]” to a counterparty is the amount that your counterparty would owe you if you [[closed out]] the transaction today — the [[replacement value]] of the transaction, so to say. | {{g}}Your “[[exposure]]” to a [[counterparty]] is the amount that your [[counterparty]] would owe you if you [[closed out]] the transaction today — the [[replacement value]] of the transaction, so to say. Exposure is primarily a measure of [[credit risk]]. One’s ''existing'' [[exposure]] and can be offset by [[variation margin]]; ones potential exposure between now and when one can next ask for more [[variation margin]] can be covered by [[initial margin]]. | ||
The flip side of the exposure card is the funding of ones exposure. Here you want to be able to deal with your collateral. If you received it by title transfer, all well and good: it is yours to monetise. If you received it by [[pledge]] or other [[security interest]], you may well want a right to “[[reuse]]” or, as our American friends like to say, “[[rehypothecate]]” it. | |||
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*[[Credit risk]] | |||
*[[Mark-to-market]] | |||
*[[Present value]] | |||
*[[Rehypothecation]] | |||
Latest revision as of 10:32, 21 April 2020
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Your “exposure” to a counterparty is the amount that your counterparty would owe you if you closed out the transaction today — the replacement value of the transaction, so to say. Exposure is primarily a measure of credit risk. One’s existing exposure and can be offset by variation margin; ones potential exposure between now and when one can next ask for more variation margin can be covered by initial margin.
The flip side of the exposure card is the funding of ones exposure. Here you want to be able to deal with your collateral. If you received it by title transfer, all well and good: it is yours to monetise. If you received it by pledge or other security interest, you may well want a right to “reuse” or, as our American friends like to say, “rehypothecate” it.