Masters Degrees (Statistics and Actuarial Science)

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Browsing Masters Degrees (Statistics and Actuarial Science) by Author "De Jager, Louis Porter"

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    Credit and debit value adjustment estimations in the data sparse South African market
    (Stellenbosch : Stellenbosch University, 2017-03) De Jager, Louis Porter; Van der Merwe, Carel Johannes; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Statistics and Actuarial Science.
    ENGLISH SUMMARY : During 2014, the International Accounting Standards Board (IASB) implemented a new standard for measuring the fair value of assets through the International Financial Reporting Standards (IFRS) 13 guidance. The newly introduced guidelines have probed market participants to adjust their valuation of financial positions for material counterparty credit risk (CCR) in the over-thecounter (OTC) market Five different models are implemented in this research for the purpose of calculating the credit value adjustment (CVA) and debit value adjustment (DVA) of an interest rate swap portfolio between a South African corporate treasurer, Eskom, and a generic South African tier 1 bank. The models differ from simple to complex. The Monte Carlo (MC) simulation model is assumed to be the most accurate, since it involves the simulation of expected exposure and the modelling of the short-rate. Corporate treasurers do not always have the necessary resources to calculate CVA by means of a sophisticated approach. Due to input data and resource challenges, corporate treasurers need to consider creative alternative methods to include CCR in their fair value adjustments. Therefore, semi-analytic methods and input approximation methods were considered in this research. It was found that simpler semi-analytic approximation methods do not possess the complexity needed to deal with the complexity of netting and collateral agreements. They serve as good approximations to quickly estimate a ball-park CVA, but lack the accuracy of the MC based approach.