It's Harder Than You Think: The New Reality for Managing Risk and Valuation of OTC Derivatives

Source: PwC
Author name: Financial Services Institute

Published: 10/13/2011

Summary:
The changing landscape in the over-the-counter (OTC) derivatives
market with respect to valuation, capital requirements, and
counterparty and liquidity management poses significant challenges to
many financial services institutions.

Addressing these areas is particularly challenging given the
interconnected nature of these issues and the requirements for
additional operational data not traditionally captured as part of
valuation and risk management processes. Furthermore, in many cases
there will be a need for significant infrastructure enhancements to
support both the flow of information across the organization and the
requirement to perform complex analyses on a frequent and timely
basis.

An integrated response is critical to successfully address the
competing challenges arising from the new regulatory, risk management,
and market forces. Leading institutions have launched a number of
initiatives to address risks relating to OTC derivatives, including:

Refining counterparty credit exposure and credit valuation adjustment
(CVA) measurements to consider the potential future or expected
exposure more completely within the derivatives portfolio.
Incorporating or further refining the impact of collateral on
valuation, counterparty risk measurement, funding costs, and liquidity
management.
Addressing changes to the market arising from evolving regulations,
with a particular focus on regulatory capital and margin requirements
for centrally cleared versus bilaterally settled OTC derivatives.

Download the same at

http://www.pwc.com/us/en/cfodirect/redirects/101211-otc-pdf.html?wt.ac=CFOdirectPDF_Its-Harder-Than-You-Think

If you can't access the link visit this page

http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=KOCL-8MKJVP&rss=true