Counterparty credit risk
= Counterparty credit risk
The risk that a trading counterparty defaults while owing a positive replacement value or settlement amount. It differs from the reference borrower's <default> exposure in a <credit default swap>. A credit hedge may fail precisely when its protection seller is distressed. Collateral, netting and margining change exposures and loss amounts; they do not turn every mismatched hedge into a risk-free claim.