Counterparty risk

The possible case that in a transaction on the financial market the counterparty becomes insolvent (the risk connected with the financial stability of the party entered into contract with, more precisely: the risk that between the time a transaction is agreed and the time it is actually settled the counterparty to that transaction will fail to fulfill its obligations). – The possibility that a product cannot be sold on the financial market because demand has dried up, i.e. there is a lack of buyers, even at any price. In the financial crisis that followed the subprime crisis, this risk appeared on a massive scale. Until then, it had been treated in financial theory models only as a negligible disturbance variable, if at all. – See counterparty, central, node, market effectiveness assumption.

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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