Gaining From Your Own Default – Counterparty Credit Risk And DVA

Counterparty credit risk is the risk that a counterparty in a financial contract will default prior to the expiration of the contract and fail to make future payments. Counterparty risk is taken by each party in an over-the-counter (OTC) derivatives contract and is present in all asset classes, including interest rates, foreign exchange, equity derivatives, commodities and credit derivatives. Given the recent credit crisis and the high profiles failures such as Lehman Brothers, the topic of