Counterparty Risk Subject To ATE

Richard Zhou

MPRA Paper from University Library of Munich, Germany

Abstract: Rating trigger ATE (Additional Termination Event) is a counterparty risk mitigant that allows banks to terminate and close out bilateral derivative contracts if the credit rating of the counterparty falls below the trigger level. Since credit default is often preceded by rating downgrades, ATE clause effectively reduces the counterparty credit risk by early termination of exposure. However, there is still the risk that counterparty may default without going through severe downgrade. This article presents a practical model for valuating CVA in the presence of ATE.

Keywords: Counterparty Risk; Credit Valuation Adjustment; Rating Transition; Rating Trigger; Additional Termination Event (search for similar items in EconPapers)
JEL-codes: C00 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:27782

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