Cash CVA -- Credit Valuation Adjustment in the Cash Form

2021 ◽  
Author(s):  
Wujiang Lou
Keyword(s):  
Credit Valuation Adjustment

scholarly journals COLLATERALIZED CVA VALUATION WITH RATING TRIGGERS AND CREDIT MIGRATIONS

2013 ◽  
Vol 16 (02) ◽  
pp. 1350009 ◽  
Author(s):  
TOMASZ R. BIELECKI ◽  
IGOR CIALENCO ◽  
ISMAIL IYIGUNLER
Keyword(s):  
Credit Ratings ◽  
Counterparty Risk ◽  
Credit Valuation Adjustment ◽  
Rating Transitions ◽  
Markovian Approach

In this paper we discuss the issue of computation of the bilateral credit valuation adjustment (CVA) under rating triggers, and in presence of ratings-linked margin agreements. Specifically, we consider collateralized OTC contracts, that are subject to rating triggers, between two parties — an investor and a counterparty. Moreover, we model the margin process as a functional of the credit ratings of the counterparty and the investor. We employ a Markovian approach for modeling of the rating transitions of the two parties to the contract. In this framework, we derive the representation for bilateral CVA. We also introduce a new component in the decomposition of the counterparty risky price: namely the rating valuation adjustment (RVA) that accounts for the rating triggers. We give two examples of dynamic collateralization schemes where the margin thresholds are linked to the credit ratings of the parties. Our results are illustrated via computation of various counterparty risk adjustments for a CDS contract and for an IRS contract.

scholarly journals Interest Rate Swap Credit Valuation Adjustment

2015 ◽  
Vol 23 (2) ◽  
pp. 24-35 ◽  
Author(s):  
Jakub Černý ◽  
Jiří Witzany
Keyword(s):  
Interest Rate ◽  
Interest Rate Swap ◽  
Credit Valuation Adjustment ◽  
Rate Swap

scholarly journals A computational approach to hedging Credit Valuation Adjustment in a jump-diffusion setting

2021 ◽  
Vol 391 ◽  
pp. 125671
Author(s):  
Thomas van der Zwaard ◽  
Lech A. Grzelak ◽  
Cornelis W. Oosterlee
Keyword(s):  
Jump Diffusion ◽  
Computational Approach ◽  
Credit Valuation Adjustment

scholarly journals Credit Valuation Adjustment Compression by Genetic Optimization

Risks ◽  
2019 ◽  
Vol 7 (4) ◽  
pp. 100
Author(s):  
Marc Chataigner ◽  
Stéphane Crépey
Keyword(s):  
New Deal ◽  
Balance Sheet ◽  
Hybrid Structure ◽  
Genetic Optimization ◽  
Counterparty Risk ◽  
Market Inefficiencies ◽  
Credit Valuation Adjustment ◽  
The Cost ◽  
The New Deal

Since the 2008–2009 financial crisis, banks have introduced a family of X-valuation adjustments (XVAs) to quantify the cost of counterparty risk and of its capital and funding implications. XVAs represent a switch of paradigm in derivative management, from hedging to balance sheet optimization. They reflect market inefficiencies that should be compressed as much as possible. In this work, we present a genetic algorithm applied to the compression of credit valuation adjustment (CVA), the expected cost of client defaults to a bank. The design of the algorithm is fine-tuned to the hybrid structure, both discrete and continuous parameter, of the corresponding high-dimensional and nonconvex optimization problem. To make intensive trade incremental XVA computations practical in real-time as required for XVA compression purposes, we propose an approach that circumvents portfolio revaluation at the cost of disk memory, storing the portfolio exposure of the night so that the exposure of the portfolio augmented by a new deal can be obtained at the cost of computing the exposure of the new deal only. This is illustrated by a CVA compression case study on real swap portfolios.

International Standards for Bank Capital Exposures to CCPs and Derivatives

2020 ◽  
pp. 126-151
Author(s):  
Lucia Quaglia
Keyword(s):  
Capital Requirements ◽  
International Standards ◽  
Basel Iii ◽  
Real Economy ◽  
Bank Capital ◽  
Financial Industry ◽  
Leverage Ratio ◽  
The Us ◽  
Credit Valuation Adjustment ◽  
The Uk

The elemental regime on bank capital for derivatives encompassed the credit valuation adjustment (CVA), the leverage ratio, and bank exposures to CCPs. Like for other parts of Basel III, the US and the UK were pace-setters internationally, promoting relatively precise, stringent, and consistent rules. The EU agreed on the need for higher capital requirements, but worried about negative implications for the provision of credit to the real economy. Networks of regulators were instrumental in furthering agreement amongst and within jurisdictions. They also fostered rules consistency through formal and informal coordination tools amongst international standard-setting bodies. The financial industry mobilized in order to reduce the precision and stringency of capital requirements, pointing out the need to consider capital reforms in conjunction with other post-crisis standards, notably, margins.

Credit valuation adjustment and wrong way risk

2013 ◽  
Vol 1 (1) ◽  
pp. 9-15 ◽  
Author(s):  
Umberto Cherubini
Keyword(s):  
Credit Valuation Adjustment

scholarly journals A SUBORDINATED CIR INTENSITY MODEL WITH APPLICATION TO WRONG-WAY RISK CVA

2018 ◽  
Vol 21 (07) ◽  
pp. 1850045 ◽  
Author(s):  
CHEIKH MBAYE ◽  
FRÉDÉRIC VRINS
Keyword(s):  
Credit Default Swap ◽  
Model Parameters ◽  
Control Variate ◽  
Arbitrage Opportunities ◽  
Jump Model ◽  
Credit Default ◽  
Credit Valuation Adjustment ◽  
Text Model ◽  
Cir Process ◽  
Monte Carlo Framework

Credit valuation adjustment (CVA) pricing models need to be both flexible and tractable. The survival probability has to be known in closed form (for calibration purposes), the model should be able to fit any valid credit default swap (CDS) curve, should lead to large volatilities (in line with CDS options) and finally should be able to feature significant wrong-way risk (WWR) impact. The Cox–Ingersoll–Ross (CIR) model combined with independent positive jumps and deterministic shift (JCIR[Formula: see text]) is a very good candidate : the variance (and thus covariance with exposure, i.e. WWR) can be increased with the jumps, whereas the calibration constraint is achieved via the shift. In practice however, there is a strong limit on the model parameters that can be chosen, and thus on the resulting WWR impact. This is because only non-negative shifts are allowed for consistency reasons, whereas the upwards jumps of the JCIR[Formula: see text] need to be compensated by a downward shift. To limit this problem, we consider the two-side jump model recently introduced by Mendoza-Arriaga and Linetsky, built by time-changing CIR intensities. In a multivariate setup like CVA, time-changing the intensity partly kills the potential correlation with the exposure process and destroys WWR impact. Moreover, it can introduce a forward looking effect that can lead to arbitrage opportunities. In this paper, we use the time-changed CIR process in a way that the above issues are avoided. We show that the resulting process allows to introduce a large WWR effect compared to the JCIR[Formula: see text] model. The computation cost of the resulting Monte Carlo framework is reduced by using an adaptive control variate procedure.

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