Risk Papers
Market Risk
report | McKinsey Working Papers on Risk, No. 48
Between deluge and drought: The future of US bank liquidity and funding
July 2013-This working paper discusses the funding structure of large US financial institutions which are undergoing a dynamic shift.
report | McKinsey Working Papers on Risk, No. 46
Managing third-party risk in a changing regulatory environment
May 2013-It makes pretty sobering reading - financial services firms in the US face an unprecedented extension of their risk management - not only are they responsible for what they do themselves, but they now have to consider their suppliers and vendors. If these third parties get it wrong, then the bank or credit card firm can find itself on the hook to regulators and consumers for what has happened at one remove. It adds up to a massive expansion of the routine due diligence required by financial services firms and an opportunity for truly innovative conversations with our clients on an unanticipated aspect of risk management.
report | McKinsey Working Papers on Risk, No. 43
Getting to ERM: A road map for banks and other financial institutions
March 2013-This working paper contains a diagnostic framework for assessing an organization's ability to manage risk at the enterprise level. McKinsey's ERM framework can help to shape discussion by senior management of ERM capabilities and shortcomings.
Paper | Federal Reserve Board, Washington D.C.
Pricing Counterparty Risk at the Trade Level and CVA Allocations
This paper addresses the problem of allocating the counterparty-level credit valuation adjustment (CVA) to the individual trades composing the portfolio. It shows that this problem can be reduced to calculating contributions of the trades to the counterparty-level expected exposure (EE) conditional on the counterpartyÕs default. It proposes a methodology for calculating conditional EE contributions for both collateralized and non-collateralized counterparties. Calculation of EE contributions can be easily incorporated into exposure simulation processes that already exist in a financial institution. It also derive closed-form expressions for EE contributions under the assumption that trade values are normally distributed. Analytical results are obtained for the case when the trade values and the counterpartyÕs credit quality are independent as well as when there is a dependence between them (wrong-way risk).