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A Credit valuation adjustment (CVA), [a] in financial mathematics, is an "adjustment" to a derivative's price, as charged by a bank to a counterparty to compensate it for taking on the credit risk of that counterparty during the life of the transaction. "CVA" can refer more generally to several related concepts, as delineated aside.
The CVA (and xVA) applied to a new transaction should be the incremental effect of the new transaction on the portfolio CVA. [12] While the CVA reflects the market value of counterparty credit risk, additional Valuation Adjustments for debit, funding cost, regulatory capital and margin may similarly be added.
Collateral valuation adjustment (ColVA) or appraisal subordination entitlement reduction (ASER) are commercial mortgage-backed security structuring innovations designed to improve overall transaction credit quality. Collateral valuation adjustments were created in response to rating agency concerns that, without such an adjustment, cash flow ...
Brigo worked extensively on the theory and practice of valuation adjustments with several co-authors, being among the first in introducing early counterparty risk pricing calculations (later called credit valuation adjustment - CVA) in Brigo and Masetti (2006), [25] and then focusing early on wrong way risk for CVA, see for example Brigo and ...
The Financial Competitive Act of 2013 is a bill that was introduced into the United States House of Representatives during the 113th United States Congress.The bill would require the Financial Stability Oversight Council to conduct a study of "the likely effects that differences between the way the United States and foreign regulators implement the CVA [Credit Valuation Adjustment] would have ...
The reforms revise the standardised approach for credit risk (SA-CR), the internal ratings-based approach for credit risk (IRB), the credit valuation adjustment (CVA) framework, the calculation of operational risk RWAs, the leverage ratio, and introduce an aggregate output floor for risk weighted assets (RWAs).
Credit insurance and credit derivatives – Lenders and bond holders may hedge their credit risk by purchasing credit insurance or credit derivatives. These contracts transfer the risk from the lender to the seller (insurer) in exchange for payment. The most common credit derivative is the credit default swap.
The risk neutral value, no matter how determined, is adjusted for the impact of counterparty credit risk via a credit valuation adjustment, or CVA, as well as various of the other XVA which may also be appended.