CVA pay day: calculation arbitrage boosts bank profits

Lack of convergence allows some banks to benefit from an arbitrage between booking and pricing the adjustment

Banks have been adjusting derivatives prices to reflect counterparty credit risk for well over a decade, so it would be reasonable to expect broad agreement on the methodology by now. But dealers and auditors say vague accounting guidelines and inconsistent regulatory treatment still allow credit valuation adjustment (CVA) approaches to vary, sometimes creating a gap between what dealers price and what they account for.

While differences in methodology between the two are common, at least one

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