What is the difference between credit risk and counterparty risk?

What are the key differences? Credit risk is the risk for holding a risky bond. Counterparty risk is the risk that the counterparty will not be able to meet its contractual obligations if the credit event occur.

What is counterparty risk management?

Counterparty risk management can be done through various means, such as conducting credit checks, using collateral, requiring margins, and entering into legally binding agreements. Settlement risk, also known as delivery risk. It is the risk that one party in a transaction might fulfill its obligations while the other party fails to do so.

How do you measure 'counterparty credit risk'?

To measure 'counterparty credit risk' boils down to finding an estimate on how much you could potentially lose assuming the counterparty does not pay at a given moment of contract life - this estimation is more challenging than in case of typical loans/guarantees. References could be found in books of Brigo and Gregory.

What is counterparty risk in derivative trading?

Counterparty risk is the risk associated with the other party to a financial contract not meeting its obligations. Every derivative trade needs to have a party to take the opposite side. Credit default swaps, a common derivative with counterparty risk, are often traded directly with another party, as opposed to trading on a centralized exchange.