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Counterparty credit risk: Difference between revisions
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→Section II: Scope of Application
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This section provides that "The methods for computing the exposure amount under the standardised approach for credit risk or {{tag|EAD}} under the [[internal ratings-based]] ({{tag|IRB}}) approach to credit risk described in this Annex are applicable to {{tag|SFT}}s and {{tag|OTC}} derivatives. | This section provides that "The methods for computing the exposure amount under the standardised approach for credit risk or {{tag|EAD}} under the [[internal ratings-based]] ({{tag|IRB}}) approach to credit risk described in this Annex are applicable to {{tag|SFT}}s and {{tag|OTC}} derivatives. | ||
{{box|Such instruments generally exhibit the following abstract characteristics: | {{box|(4) Such instruments generally exhibit the following abstract characteristics: | ||
*The transactions generate a current exposure or market value. | *The transactions generate a current exposure or market value. | ||
*The transactions have an associated random future market value based on market variables. | *The transactions have an associated random future market value based on market variables. | ||
*The transactions generate an exchange of payments or an exchange of a financial instrument (including commodities) against payment. | *The transactions generate an exchange of payments or an exchange of a financial instrument (including commodities) against payment. | ||
*The transactions are undertaken with an identified counterparty against which a unique probability of default can be determined. | *The transactions are undertaken with an identified counterparty against which a unique probability of default can be determined. | ||
(5) Other common characteristics of the transactions to be covered may include the | |||
following: | following: | ||
*Collateral may be used to mitigate risk exposure and is inherent in the nature of some transactions. | *Collateral may be used to mitigate risk exposure and is inherent in the nature of some transactions. | ||
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*Netting may be used to mitigate the risk. | *Netting may be used to mitigate the risk. | ||
*Positions are frequently valued (most commonly on a daily basis), according to market variables. | *Positions are frequently valued (most commonly on a daily basis), according to market variables. | ||
*Remargining may be employed.}} | |||
{{bipruanatomy}} | {{bipruanatomy}} | ||