What Are the Primary Types of Counterparty Risk Present in OTC Derivatives? ⎊ Path

What Are the Primary Types of Counterparty Risk Present in OTC Derivatives?

The main risk is credit risk, which is the possibility that the counterparty to the contract will default on their obligations before the contract settles. Since there is no CCP guarantee, each party must assess the creditworthiness of the other.

Liquidity risk can also arise if a party cannot easily offset or exit the customized position, compounding the default risk.

How Is Counterparty Credit Risk Managed When a Prime Broker Acts as a Central Counterparty?

How Does the Introduction of a Central Counterparty (CCP) Change the Counterparty Risk Profile?

What Is the Primary Difference between a Central Counterparty (CCP) and an Over-the-Counter (OTC) Market?

What Is the Distinction between Default and Non-Default Losses for a CCP?

What Are the Key Risks a CCP Assumes by Guaranteeing Trades?

How Does the Default Waterfall Work in a CCP?

Why Are Margin Requirements Higher for Options Traded on Non-Cleared, Over-the-Counter (OTC) Markets?

What Is the Primary Advantage of a Centrally Cleared DVP over a Bilateral OTC DVP?