Counterparty risk


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Related to Counterparty risk: Counterparty credit risk

Counterparty risk

The risk that the other party to an agreement will default. In an options contract, the risk to the option buyer that the option writer will not buy or sell the underlying as agreed.

Counterparty Risk

1. In options, the risk that the option holder will not exercise the option. This may be good if the price moves in the option writer's favor, but counterparty risk is small in that situation.

2. More generally, the risk that one party in a contract will default or otherwise not fulfill his/her obligations. Counterparty risk can be diminished when one party mandates a co-signer or highly-rated guarantor. See also: Intermediated market.

counterparty risk

The risk that a party to a transaction will fail to fulfill its obligations. The term is often applied specifically to swap agreements in which no clearinghouse guarantees the performance of the contract.

Counterparty risk.

Counterparty risk is the risk that the person or institution with whom you have entered a financial contract -- who is a counterparty to the contract -- will default on the obligation and fail to fulfill that side of the contractual agreement.

In other words, counterparty risk is a type of credit risk. Counterparty risk is the greatest in contracts drawn up directly between two parties and least in contracts where an intermediary acts as counterparty.

For example, in the listed derivatives market, the industry's or the exchange's clearinghouse is the counterparty to every purchase or sale of an options or futures contract. That eliminates the possibility that the buyer or seller won't make good on the transaction.

The clearinghouse, in turn, protects itself from risk by requiring market participants to meet margin requirements. In contrast, there is no such protection in the unlisted derivatives market where forwards and swaps are arranged.

References in periodicals archive ?
It is important to stress that counterparty risk is typically viewed as likely to be small if the counterparty defaults prior to the default event (i.e., [[tau].sub.C] < [[tau].sub.B]) and, if the marking to market were perfect, then the investor could reopen a new position at no cost with another counterparty the same day as the underlying bond ([[tau].sub.C] = [[tau].sub.B]).
The ratings also benefit from TBI's strong organic growth and lower counterparty risk against its domestic peers - Indonesia's largest independent tower operator, Protelindo, and third-largest independent tower company, STP.
After careful review COFCO International selected Quantifi's Commodity Counterparty Risk Management (CCRM) solution.
The bank's b2 baseline credit assessment (BCA), b1 adjusted BCA, B1 long-term deposit ratings and Ba2 long-term Counterparty Risk Ratings as well as its Not Prime short-term deposit and Counterparty Risk Ratings remain unaffected.
The rating company affirmed the bank's short-term notprime(cr) counterparty risk assessment, it said on Friday.
The system allows trading of digital tokens across multiple blockchains without counterparty risk. The system does not use atomic swaps and does not require modifications to the existing blockchains.
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Following the deal, Moody's changed the outlook for BCR's deposits from stable to positive and affirmed the bank's long-term Ba1 deposit ratings and Baa3(cr) Counterparty Risk Assessment (CRA).
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First, insurer default, or counterparty risk, is an important feature of financial insurance markets, as became clear in the wake of the recent credit crisis, in which numerous sellers of protection simultaneously experienced extreme instability.