Market Risk vs Counterparty Risk
Hello fellow chimps, I have been working in the risk field 2 yrs from when I got my bachelor degree. Started off from corporate credit risk and now working in market risk. I do like working in my current capacity but I wonder what my future exits could be. I've seen some roles related to counterparty risk recently. I do see from the JDs the job is somewhat quantitative and shares certain common skill sets of market risk.
My questions are, how relevant is market risk as compared to counterparty risk and would you consider that as a good move to switch over from market risk to counterparty risk?
This is like comparing apples to oranges. Two different skill sets. Better question is why did you switch? What are your goals
The move is all dependent on what exactly you want to do in the future. For example, if I wanted to one day go into sales and trading, being a market risk analyst would be relevant. In terms of exit ops, it may take pursing your MBA or taking the CFA to exit into a FO role. Check out my post on financial risk analysts for more detail: http://www.wallstreetoasis.com/forums/a-day-in-the-life-of-a-financial-…
I'm curious, why did you want to go to counterparty risk from market risk?
The reason of such is quite a mix of everything. It looks to me capital market isn't as good as it was used to be (and the fate of market risk is pretty much tied to it). Even if I'm good enough, it's kind of rare to see openings in this area. In my current firm, business has been downsizing and there's been not much trading going on (what's left is just MM). It could be due to the fact that I work in a foreign location which might have to play safer. Understanding that things could better in larger firms but all in all the sunset is my overall feeling.
Personally speaking I haven't been aiming at sales & trading. I've seen market risk people switching over to corporate treasury which ends up to be a support role within the organization. So what's more important to me is if the job is meaningful. In this sense I also wonder where'd counterparty risk people move to.
Perhaps I could add more on the role I'm looking at. It is for counterparty credit risk on market transactions. That's also the reason why I mentioned it was similar to market risk in terms of skillset as one can easily relate VaR to MTM, PFE, etc. On top of that I also see people moving from and to these 2 functions.
(bringing this up again)
Counter party Risk (Originally Posted: 11/10/2013)
Hey, I was assigned a hypothetical question that I am not sure how to think about and I would really appreciate it if you could help me out--
Assume you are making ~100k notional trades (1/2 long, 1/2 short) a thousand times per year and your counter party declares bankruptcy one some random day. If you're using normal settlement (t plus 3), how much money does you place at risk?
Thanks for any insights!
This is a vague question a halfway decent answer to which requires a lot of specifics that aren't given.
At any rate, my answer would be smth like 400k.
The way I think about it is by taking the worst case scenario for a given day.
That's 4 trades a day (assuming 250 trading days per year) so if you do 2 long and 2 short it really depends on what product you are talking about and what price movements you consider during the day since you can argue that you might be flat every day...
Market risk (VaR) and counterparty credit risk (PFE) are very similar fields.
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