A part of the regulatory Capital and RWA (risk-weighted asset) calculation [1] introduced under Basel 3;
The CVA desk of an investment bank, whose purpose is to:
hedge for possible losses due to counterparty default;
hedge to reduce the amount of capital required under the CVA calculation of Basel 3;
The "CVA charge". The hedging of the CVA desk has a cost associated to it, i.e. the bank has to buy the hedging instrument. This cost is then allocated to each business line of an investment bank (usually as a contra revenue). This allocated cost is called the "CVA Charge".
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 is one of a family of related valuation adjustments, collectively xVA; for further context here see Financial economics § Derivative pricing.
"CVA" can refer more generally to several related concepts, as delineated aside.
The most common transactions attracting CVA involve interest rate derivatives, foreign exchange derivatives, and combinations thereof.
CVA has a specific capital charge under Basel III, and may also result in earnings volatility under IFRS 13, and is therefore managed by a specialized desk.
^A Guide to Modeling Counterparty Credit Risk, GARP Risk Review, July–August 2007 Related SSRN Research Paper
^Patrik Karlsson, Shashi Jain. and Cornelis W. Oosterlee (2016). "Credit Exposures for Interest Rate Derivatives using the Stochastic Grid Bundling Method". Applied Mathematical Finance.
Cite error: There are <ref group=lower-alpha> tags or {{efn}} templates on this page, but the references will not show without a {{reflist|group=lower-alpha}} template or {{notelist}} template (see the help page).
and 23 Related for: Credit valuation adjustment information
A Creditvaluationadjustment (CVA), in financial mathematics, is an "adjustment" to a derivative's price, as charged by a bank to a counterparty to compensate...
An X-Value Adjustment (XVA, xVA) is an umbrella term referring to a number of different “valuationadjustments” that banks must make when assessing the...
value, no matter how determined, is adjusted for the impact of counterparty credit risk via a creditvaluationadjustment, or CVA, as well as various of the...
South Africa, now Cape Field Artillery CreditValuationAdjustment, the market value of counterparty credit risk Company voluntary arrangement, UK, for...
concerns, banks will typically calculate a creditvaluationadjustment, as well as other x-valuationadjustments, which then incorporate these risks into...
transaction credit quality. Collateral valuationadjustments were created in response to rating agency concerns that, without such an adjustment, cash flow...
effects of credit risk when determining a fair value measurement, e.g. by calculating a creditvaluationadjustment (CVA) or debit valuationadjustment (DVA)...
framework) and any related credit spread Creditvaluationadjustment, CVA, as well as the various XVA Credit risk, counterparty credit risk, and regulatory...
rigorously the debit valuationadjustment (DVA), while a volume on the updated nonlinear theory of valuation, including credit effects, collateral modeling...
additionally considered when pricing, and a creditvaluationadjustment, or CVA – and potentially other valuationadjustments, collectively xVA – is generally added...
of market and counterparty credit risk Add the creditvaluationadjustment–risk due to deterioration in counterparty's credit rating Strengthen the capital...
government security; see Relative valuation. Here, the yield to maturity on the bond is determined based on the bond's Credit rating relative to a government...
Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. Here various valuation techniques...
Real estate appraisal, property valuation or land valuation is the process of developing an opinion of value for real property (usually market value)...
yield spread or credit spread is the difference between the quoted rates of return on two different investments, usually of different credit qualities but...
An inventory valuation allows a company to provide a monetary value for items that make up their inventory. Inventories are usually the largest current...
Real options valuation, also often termed real options analysis, (ROV or ROA) applies option valuation techniques to capital budgeting decisions. A real...