CVA and the equivalent bond

Riccardo Rebonato, Mike Sherring and Ronnie Barnes
24 Aug 2010

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A number of different suggestions have been proposed to come up with a simple, yet risk-sensitive, capital charge to cover changes in the mark-to-market value of the credit valuation adjustment (CVA) arising from counterparty exposures. In particular, regulators have proposed mimicking in a simple way the behaviour of the CVA exposure to changes in credit spreads by using an equivalent risky discount bond (the equivalent-bond approach). The industry has put forward counterproposals with

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