Lecture_7_CVA_201820180402201111

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CVA CalculationOutline1 IntroductionCounterparty RiskExposures2 CVAGeneral FrameworkUnilateral CVA3 CVA CalculationGeneral FrameworkWrong Way RiskMonte Carlo Valuation4 Case StudiesCase Study 1: Single Interest Rate Swap (IRS)Case Study 2: Portfolio of IRS5 Mitigating Counterparty ExposureNettingCollateral6 Selected ReferencesPaola Mosconi 20541 – Lecture 10-11 34 / 86
CVA CalculationGeneral FrameworkGeneral FrameworkWe consider for simplicity the case of unilateral CVA.The goal is to calculate CVA expressed as in formula (4), i.e.CVA = E[D(0,τ)Loss(τ)] = LGDE[1 {τ≤T} D(0,τ) (V(τ)) +]Closed-form formulae are only available:for certain single deals, i.e. in the absence of a netting setunder the assumption of independence between counterparty risk,embedded in 1 {τ≤T} and the risks associated to the underlying exposure,embedded in V(τ)Paola Mosconi 20541 – Lecture 10-11 35 / 86
Page 1 and 2: Introduction to Counterparty RiskPa
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Page 19 and 20: CVAGeneral FrameworkCredit Value Ad
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Selected ReferencesOutline1 Introdu
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Lecture_7_CVA_201820180402201111

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