‘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

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