Credit Valuation Adjustment (CVA)

22 Pages Posted: 2 Dec 2008 Last revised: 19 Oct 2010

See all articles by Shahram Alavian

Shahram Alavian

Barclays Capital; Royal Bank of Scotland (RBS); Toronto-Dominion (TD) Bank Financial Group - TD Securities; Lehman Brothers Europe

Jie Ding

Lehman Brothers

Peter Whitehead

Lehman Brothers

Leonardo Laudicina

Lehman Brothers

Date Written: August 28, 2008

Abstract

This paper provides an overview of counterparty default risk and counter-party valuation adjustments, within the context of collateralized and un-collateralized trading relationships. The counterparty valuation adjustment terms are derived by decomposing an un-defaultable portfolio into a set of binary states. These states are a set of market values (positive or negative), default states (default or no default) and recoveries (recover the the recovery amount or not). In particular, the asset charge is formulated for both un-collateralized and collateralized portfolios while different models are provided for the collateral transfer calculations of the collateralized trading accounts.

Suggested Citation

Alavian, Shahram and Alavian, Shahram and Ding, Jie and Whitehead, Peter and Laudicina, Leonardo, Credit Valuation Adjustment (CVA) (August 28, 2008). Available at SSRN: https://ssrn.com/abstract=1310226 or http://dx.doi.org/10.2139/ssrn.1310226

Shahram Alavian (Contact Author)

Barclays Capital ( email )

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Lehman Brothers Europe ( email )

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Jie Ding

Lehman Brothers ( email )

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Peter Whitehead

Lehman Brothers ( email )

25 Bank Street
30th Floor
London E14 5LE
United Kingdom

Leonardo Laudicina

Lehman Brothers ( email )

25 Bank Street
30th Floor
London E14 5LE
United Kingdom

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