‘A choreographed ballet’: academics attack CVA

Derivatives add-on rubbished by Cont and Rebonato

Ballet practice: add-ons likened to a series of exercises to please regulators
Ballet practice: Valuation adjustments likened to a series of pointless exercises to please regulators

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

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: