Bilateral counterparty risk with application to CDSs

In the valuation arena, bilateral features are relevant for counterparty risk and can often be responsible for seemingly paradoxical statements. For example, Citigroup, in its press release on its first-quarter 2009 revenues, reported a positive mark-to-market due to its worsened credit quality: “Revenues also included... a net $2.5 billion positive credit valuation adjustment (CVA) on derivative positions, excluding monolines, mainly due to the widening of Citi’s credit default swap (CDS)

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