Lecture_7_CVA_201820180402201111
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CVA Calculation
Monte Carlo Valuation
Monte Carlo Valuation II
In order to simplify the calculation of:
CVA ≈ 1
N∑
MC
N MC
k=1
two approximations are commonly introduced:
Approximation 1: Default bucketing
D(0,τ;ω k )Loss(τ,X(τ,ω k ))
Approximation 2: Default bucketing + independence
This is equivalent to ignoring wrong/right way risk
Paola Mosconi 20541 – Lecture 10-11 44 / 86
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