The Roots of Counterparty Credit Risk

Abstract

For many years, the main focus of risk in books on financial derivatives was Market Risk Market Risk assesses the risk in the trading portfolio resulting from changes in the market prices An example would be: if we were short on an equity forward, the value of that forward will decrease if the underlying equity price increases Market risk metrics deal with short time horizons, typically ten business days, because it is perceived that we can rehedge or exit our positions in only a few days.