Banks look to cut corners on CVA computation
Calculating credit value adjustment correctly for exotic instruments can require the simulation of scenarios within scenarios – and today’s computers may not be up to it. As a result, banks are looking for short cuts, and they may be able to learn from the insurance industry. By Clive Davidson
Todya's computers are being pushed to their limits by modern pricing and risk management practices, which often rely on stochastic analysis in the form of Monte Carlo simulation. These processes require the value of trades and portfolios to be calculated for a range of subtly differing scenarios. That generally takes massed computing power in the form of networked grids of processors – but it is not always enough.
Certain portfolios or products can require additional stochastic analysis if their
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