Accounts Exposure and Losses from Defaults
Accounts and the ensuing Credit Tags that are associated to them determine your lowest credit exposure, which in turn forms the assumed position used in all other credit risk measures , be it Losses given default, Margins, Termination and Continuation, Survival Analysis or Time-To-Default. This in turn leads to counterparty / obligor / Issuer statistics and then country exposure and losses.
Accounts are naturally designed to capture day-to-day balance from counterparty
inflows and outflows, cash-account accumulation from associated trade revaluation, but they also carry
the legal and financial rules that are meant to take over when the contractual relationship between counterparties
goes south.
Accounts extend beyond simple netting and collateral provisions
to condense the legal and financial repercussion of failure-to-pay, payment delinquency,
default and termination or even the cost associated to survival.
The Account covers the following fields:
- The party that opened the account.
- The signature of ISDA Netting Agreements and the subsequent close-out netting rules.
- Recovery class, which refers to an average recovery rate and recovery volatility record.
- Collateral as an amount in a selected currency for the counterparty owner.
- Applicable Rules for Dynamic Collateral Revaluation.
- The Counterparty Sponsor if the counterparty's collateral is additionally secured by more collateral from the home office or underwriter
- The additional Collateral amount and currency of the Home office or sponsor. If any
| ACCOUNT | ||
| Counterparty | ||
| Recovery | ||
| ISDA Netting Policy | ||
| Counterparty | If Guaranteed by Home Office | |
| Party Collateral | Home Office Collateral | |
| Amount of Collateral Posted by Home-Office to cover a loss bigger that Collateral posted by Party | ||
Counterparty Account One to Many Relationship
The Counterparty -Account is a one to many relationship.
In Financial-Risk-Manager Every Counterparty can create 9999 accounts. Risksvr™ can accept any number of Accounts when they are injected directly into the server (either through xml payload or shared memory
By the same token, Risksvr™ accepts different Ratings and Country Definitions for each account, the Credit Manager Module that is part of Financial-risk-Manager does not provide this feature. This was a deliberate User interface design choice.
If you want to define accounts with different ratings, you can create accounts assigned to different parties that belong to the same counterparty group.
Engine Functionality
You can assign different ratings, recoveries or country to accounts that belong to the same party. These fields are only available in the Account DataSource Realm.
If you need to define accounts that belong to the same Counterparty but have different ratings and countries you will need to generate the Account DataSource, which is usually done from a third party system or at least a Data-Base or Spreadsheet containing this data. This data can be supplied in numerous IO formats and APIs.
You can assign different ratings, recoveries or country to accounts that belong to the same party. These fields are only available in the Account DataSource Realm.
If you need to define accounts that belong to the same Counterparty but have different ratings and countries you will need to generate the Account DataSource, which is usually done from a third party system or at least a Data-Base or Spreadsheet containing this data. This data can be supplied in numerous IO formats and APIs.
The Default Counterparty and Account Pair
To measure Credit Risk, you need at least One Account - Counterparty Pair.
To make the engine easier to use, a default
Counterparty and a Default Account pair is shared amongst users.
The Name of the shared Counterparty-Account pair is
Default-0101. The counterparty name is Default
and the Account is 101.
The Default Account-Counterparty Pair
is only designed to simplify trade entry !
We do not recommended you use the Default Counterparty Account pair for
anything else than testing.
Create your First Account
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Accounts depend on Counterparties but parties are always referred through accounts. his means every party needs at least one account to exist. This is why the first account is always included in the counterparty definition! To Create the new party select the Counterparty menu Note:The Account fields are displayed in a different color.
When you create a Counterparty, you will also need to define at least one corresponding account. This is why the counterparty screen also includes the first Account Definition: The Counterparty specific Information is as follows:
To Define Different Accounts for the Same Counterparty, Select Create New Account You now must first select the Party to which the Account Belongs To.
Account and Counterparty are NOT necessarily required.
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