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12
votes
2answers
663 views

Can you fully hedge an option in the presence of counterparty risk?

The derivation of the Black-Scholes model assumes no counterparty risk. Does the presence of counterparty risk invalidate the argument behind the model? EDIT: The question is about options in ...
7
votes
1answer
1k views

What happens if a custodian bank defaults?

This question follows up my answer and the related comment to this post and in general relates to counterparty risk. When you buy a financial asset, this asset goes in your account at your custodian ...
7
votes
2answers
327 views

Do you know a good article on ETF's counterparty risk analysis?

I am at the moment considering investing into ETFs, but I am looking first to understand how these products really work. Indeed, it is my understanding that ETF can vary in terms of structure, thus ...
1
vote
0answers
156 views

How to calculate a the PFE for a Swaption?

How do you calculate the Potential Future Exposure (PFE) for a swaption? Do you incorporate the dynamics of implied volatility when you are running your simulations? Is there a standard way to ...