‘A choreographed ballet’: academics attack CVA
Derivatives add-on rubbished by Cont and Rebonato
Two well-known finance professors today called into question the legitimacy of derivatives prices that incorporate a credit valuation adjustment (CVA) – a widely used add-on that reflects counterparty risk.
In a series of colourful attacks, the academics compared CVA to “eating spinach” and “flossing your teeth” – important, but dull – before levelling the more serious charge that the adjustments are mathematically shaky.
“I don’t know how long it takes for CVA to blow up in our faces in the
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