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I fortunately landed an internship in Model Risk Management in one of the largest European Banks and now am looking for good references for Counterparty Credit Risk, especially derivatives exposure, since there doesn't seem to be a lot of literature.

Thanks in advance!

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3 Answers 3

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Schönbucher, P., & Schubert, D. (2001). Copula-Dependent Defaults in Intensity Models. Working Paper, Bonn University.

Terentyev, S. (2004). Asymmetric counterparty relations in default modeling. Technical Report. Stanford University. (pdf)

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I strongly recommend starting with this:

Zhu, Steven and Pykhtin, Michael (2008). ”A Guide to Modeling Counterparty Credit Risk”, GARP Risk Review

This should introduce you to all necessary concepts you might encounter in a counterparty-related internship. Then you might want to read the following:

Longstaff, Francis and Schwartz, Eduardo (2001). “Valuing American Options by Simulation: A Simple Least-Squares Approach”, The Review of Financial Studies, Vol. 14, No. 1, pp. 113-147

In many banks, exotic derivatives are valued using Longstaff-Schwartz techniques for the purpose of counterparty-related calculations because of its efficiency, simplicity and good performance. This might also be the case in your place.

After that, I guess additional reading is up to you and the kind of tasks you are exposed to during your internship.

Finally, considering you mention you will be working in model risk, I also recommend the following paper:

Derman, Emanuel (1996). “Model Risk”, Quantitative Strategies Research Notes, Goldman Sachs

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  • $\begingroup$ Thank you so much! Do you know whether there is any textbook-like literature or is the topic too recent? $\endgroup$
    – Max
    Feb 17, 2020 at 15:25
  • $\begingroup$ Is this related to XVA (i.e. Front Office/pricing view) or Counterparty Credit Risk (i.e. Risk view)? In XVA space, you have Gregory's The XVA Challenge and Green's XVA which are the standard references, though to be honest I haven't really looked at them. It really depends on what you will do in your position. For example, you might be involved in looking at fast pricers for exotic derivatives for IR products. That's not really a XVA-specific topic, and the relevant literature will probably have to be found in the pricing side. $\endgroup$
    – Daneel Olivaw
    Feb 17, 2020 at 15:58
  • $\begingroup$ I will most likely be in the middle office since it is part of the Risk Management. $\endgroup$
    – Max
    Feb 17, 2020 at 23:12

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