Embark on a journey of knowledge! Take the quiz and earn valuable credits.
Challenge yourself and boost your learning! Start the quiz now to earn credits.
Unlock your potential! Begin the quiz, answer questions, and accumulate credits along the way.
What is Credit Valuation Adjustment mean?
Credit valuation adjustment (CVA) is the difference between the risk-free portfolio value and the true portfolio value that takes into account the possibility of a counterparty's default. In other words, CVA is the market value of counterparty credit risk. This price depends on counterparty credit spreads as well as on the market risk factors that drive derivatives' values and, therefore, exposure. CVA is one of a family of related valuation adjustments, collectively xVA; for further context here see Financial economics § Derivative pricing.
Unilateral CVA is given by the risk-neutral expectation of the discounted loss. The risk-neutral expectation can be written as
C V A ( T ) = E Q [ L ∗ ] = ∫ 0 T E Q [ L G D B 0 B t E ( t ) | t = τ ] d P D ( 0 , t ) {\displaystyle \mathrm {CVA(T)} =E^{Q}[L^{*}]=\int _{0}^{T}E^{Q}\left[LGD{\frac {B_{0}}{B_{t}}}E(t)|t=\tau \right]d\mathrm {PD} (0,t)}where T {\displaystyle T} is the maturity of the longest transaction in the portfolio, B t {\displaystyle B_{t}} is the future value of one unit of the base currency invested today at the prevailing interest rate for maturity t {\displaystyle t} , reference
Posted on 12 Dec 2024, this text provides information on Miscellaneous in Accounts and Finance related to Accounts and Finance. Please note that while accuracy is prioritized, the data presented might not be entirely correct or up-to-date. This information is offered for general knowledge and informational purposes only, and should not be considered as a substitute for professional advice.
Turn Your Knowledge into Earnings.
Ever curious about what that abbreviation stands for? fullforms has got them all listed out for you to explore. Simply,Choose a subject/topic and get started on a self-paced learning journey in a world of fullforms.
Write Your Comments or Explanations to Help Others