Risks for a Counterparty Risk Trader
Hello,
I was looking at a PnL report for a CRT trader the other day and was just wondering if someone could help me understand some of the columns I saw in this report. The trader's PnL was determined by : "Closing CVA - Opening CVA". There were then a series of columns that attempt to explain where these changes in PnL are coming from. For instance : commodity delta, IR delta, FX Cross Gamma etc.
What do these essentially mean? If I see IR delta = -3,500 USD is this the resulting PnL from the change in interest rates or the PnL lost as a result of the trader having to dynamically hedge his position because of change in interest rates... And how does this tie into CVA?
Hi Interesting post. I spent 2 weeks on the CVA desk over the summer and found it extremely fun (pity they dont hire much on the fresh grad side). I'll try to answer your qn. CVA = Probability of default * Expected Exposure * (1-Recovery rate). in terms of PnL, you can always use this formula. in terms of the components mentioned by you, i think IR delta means it means the latter definition. For CVA specifically we normally focus on the CS01 (credit sensitivity of 1 basis point), so in the end IR delta may be just a small component of the overall PnL impact. Either way, CVA is always a waiting game, the traders I worked with didnt really care about daily PnL as much as they did with their overall portfolio performance overtime.
you can check this pdf out, if not send me a PM if you want to know more http://iruizconsulting.com/wp-content/uploads/2014/04/iRuiz_CVA_Demysti…
cheers
What is Counterparty Risk Trading (Originally Posted: 03/09/2016)
What is Counterparty Risk Trading?
i need to know the answer to this ASAP. please, thanks for your help.
I'm assuming this is a proper trading role and not a risk management role, but what exactly does it entail?
What kind of skills (math, programming, etc) would normally be required to be successful in this field?
What are the career prospects if one begins their career at a bb investment bank in this area?
Just based on the name it looks like credit derivative trading except with the goal of managing counterparty risk. Sounds like a mishmash of trading and risk management in my opinion (but isn't that what sell side trading always is anyway?). My guess is it's more working with corporate treasuries than asset managers/banks.
Assuming this is the case you would want a solid math and statistics background. Obviously programming is a plus.
Can't speak to your last question at all, but sounds like you would get some solid experience.
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