A Practical Guide to Monte Carlo CVA

By: Alexander Sokol

The regulatory and internal requirement to measure counterparty risk pre-dates the financial crisis by many years. Most firms carrying derivatives books had the ability to compute counterparty exposures for their trades, and many had built sophisticated Monte Carlo systems to do so. The only thing that was missing was taking the possibility of default seriously. Because of the perceived low probability of default, enormous exposures were allowed to build up at some firms without raising any ala

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