CREDIT VALUATION ADJUSTMENT
information across the firm. Calculating and managing CVA involves performing valuations and simulation of risk exposures at the counterparty level for multiple scenarios after taking netting and collateral clauses into account (Figure 4). NQuantX is in the process of developing a market, credit and
liquidity risk engine that will provide CVA calculations specifically designed for energy and commodity market participants. If you are interested in being part of the beta programme, please write to
carlos@nquantx.com (see adjacent box).
Conclusion Counterparty risk management in energy and commodity
markets has been gradually evolving from passive risk assessments to active management, hedging and pricing of exposures. At the heart of the credit revolution is the concept of pricing
and hedging credit risk, in which CVA plays a critical role. CVA is gradually becoming an integral part of the risk management process of energy and commodity trading firms, and many risk
References
• “Dynamic Risk Analysis in Energy Markets” Blanco, C. and Mammarelli, C. (2008) Worldpower.
• “Credit Risk Measurement and Management for Energy Firms” (Blanco, C., Dowd, K.,Mark, R. and Murdoch, W.) 2006, in Fusaro, P. C. (Ed) Professional Risk Managers’ Guide to Energy and Environmental Markets, pp. 69-82.
managers believe that it is likely to play a similar role for credit risk management to what Value at Risk (VaR) did for market risk. •
Carlos Blanco is co-founder and
Managing Director of NQuantX LLC, a financial engineering firm that
develops customized software to design and implement hedging programs and trading strategies, as well as valuation and market, credit and liquidity risk
measurement of energy derivatives, long term contracts and physical assets. He is a former VP, risk solutions at Financial Engineering Associates (now a MSCI/ Barra company). He also conducts
several courses on energy derivatives trading, hedging, pricing and risk management, as well as credit and
counterparty risk management for the Oxford-Princeton Programme. He is a lecturer on risk management at the University of California, Berkeley.
E:
carlos@nquantx.com
5 – 6 April 2011, Marina Bay Sands, Singapore Platinum Sponsor:
Global insights on commodity trading & investment strategies for Asian institutional investors, fund & asset managers
Gold Sponsor: Session Sponsors:
Commodities Week Asia 2011 is the industry’s platform and authoritative leadership forum in Asia convening both global and Asia institutional investors, hedge funds, fund of funds, asset managers, investment banks, trading houses, investment consultants, commodity brokers, exchanges and technology partners to meet, network and discuss trends, opportunities and challenges in the commodity investment space.
Organised by: Media Partner:
For more information, please visit our website
www.terrapinn.com/2011/commodities-week-asia.
For registration, please call Yee Lim at +65 6322 2701 or email
yeelim.tan@terrapinn.com
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