Example Derivatives Questions

  1. Counterparty risk
  2. American vs European options
  3. Pin risk
  4. Key assumptions BS model
  5. Forward skew
  6. Impact of expense ratio
  7. Currency risk
  8. Municipal bonds
  1. Derivatives general
  2. Option theory
  3. Black Scholes model
  4. Implied volatility
  5. ETF theory
  6. ETF hedging
  7. Fixed income
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Counterparty risk

What is 'counterparty risk' in derivatives, and how is it managed?

Hint

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Answer

Counterparty risk is the risk that the other party in a derivative contract will default on their obligations. It is managed through mechanisms like margin requirements, daily settlement, and, in the case of exchange-traded derivatives, through the clearinghouse acting as the counterparty to all trades.