Part III Investment Banking, 16 Counterparty Risk
- Credit derivatives — Credit default swap (CDS) — Bonds — Basel 3 — Basel 2
16.01 Trading book exposures are generally assessed as giving rise to position risk (‘PR’) rather than counterparty or credit risk (‘CR’). However, a number of trading book exposure types may give rise to both. To take a simple example, if a firm purchases a security in the cash market it will have a position risk on that holding. If it enters into a derivative under which it is liable to receive the value of the security it has two risks—a position risk on the security, and a counterparty risk on the derivative counterparty. Such exposure can also arise under...