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Polysena
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Posts: 230
Joined: January 25th, 2007, 10:06 am

Close-out risk. Help asap needed

June 27th, 2007, 6:52 pm

Does someone know what is meant by this?1. is it related with close-out and netting procedures2. or more generally with unwinding positions.I have seen also close-out exposurehow would these things be related if ever.Thank you in advance.
 
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RealIllusion
Posts: 22
Joined: November 13th, 2003, 12:41 pm

Close-out risk. Help asap needed

June 29th, 2007, 1:57 pm

Are you referring to the close-out component of credit risk, which comes into play when a counterparty defaults? If a bank has a number of open trades with a defaulting counterparty, some of these trades will probably have positive exposure, i.e. there is value in the trades and the bank will lose money due to the counterparty defaulting. Close-out risk relates to the possibility that the exposure on these open positions may increase further during the period (typically a few days) it takes to close out these positions. As I understand it "unwinding" and "closing out" are synonymous. If there is a netting agreement in place the bank may be able to offset the losses against gains from negative exposes - this may be relevant for reporting purposes, Basel II compliance etc.
 
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Polysena
Topic Author
Posts: 230
Joined: January 25th, 2007, 10:06 am

Close-out risk. Help asap needed

June 29th, 2007, 7:19 pm

QuoteOriginally posted by: RealIllusionAre you referring to the close-out component of credit risk, which comes into play when a counterparty defaults? If a bank has a number of open trades with a defaulting counterparty, some of these trades will probably have positive exposure, i.e. there is value in the trades and the bank will lose money due to the counterparty defaulting. Close-out risk relates to the possibility that the exposure on these open positions may increase further during the period (typically a few days) it takes to close out these positions. As I understand it "unwinding" and "closing out" are synonymous. If there is a netting agreement in place the bank may be able to offset the losses against gains from negative exposes - this may be relevant for reporting purposes, Basel II compliance etc.Yes in the meantime I was able to figure this out... but your post is very clear.... thank you for writting. I am very grateful...
 
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Polysena
Topic Author
Posts: 230
Joined: January 25th, 2007, 10:06 am

Close-out risk. Help asap needed

June 29th, 2007, 7:27 pm

oops
Last edited by Polysena on June 28th, 2007, 10:00 pm, edited 1 time in total.
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