Understanding Counterparty Credit Risk

• 3/10/2012
• One-minute read

Financial teams use shorthand like IRC (Incremental Risk Charge) when discussing Basel capital rules. Developers building risk platforms must translate that tribal language into concrete requirements.

Recommended Primer

• Incremental Risk Charge Modelling Paper (arXiv): provides mathematical background for IRC, default correlation, and migration risk.

How to Get Up to Speed

• Build a glossary as you interview subject-matter experts—capture regulatory references (Basel II.5/III) alongside system names.
• Validate calculations with test portfolios before coding them into the engine; misinterpreting IRC definitions leads to capital misstatements.
• Pair with quantitative analysts to review VaR, IRC, and CVA assumptions; document approval from risk governance.

Disclaimer

This article shares educational resources only. Always consult compliance, risk methodology, and legal teams before implementing or changing capital calculations.