Systematic risk factors redefined


The credit valuation adjustment (CVA) that is added to derivatives prices to reflect the risk of the counterparty’s default is a particularly visible example of the need for the dependence between market and credit risks to be captured consistently. Because it is calculated on a netting set basis, large quantities of assets must be simulated simultaneously, with a dependence structure capturing their joint distribution – and that of their default times. Click here to view the full