Using credit valuation adjustment to set limits

In their previous article, Carlos Blanco and Michael Pierce introduced the concept of credit valuation adjustment (CVA). In this next instalment, they explore CVA allocation methods and discuss alternative structures using CVA to set limits, credit charges and perform risk-adjusted pricing for new transactions

Credit valuation adjustment for energy and commodity derivatives - part two

When two entities enter into a series of transactions, they also exchange an implicit option to default. Credit valuation adjustment (CVA) is the price or cost of credit risk for a deal or portfolio with a given counterparty.

CVA can be calculated at the individual transaction level or for each counterparty portfolio. The overall CVA for the exposures with a given counterparty is not simply the sum of the CVAs for individual deals, because of the need to take into account credit risk mitigation

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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