Quants continue to criticise counterparty risk measures
Adjusting the adjustments
Counterparty risk, and in particular the treatment of credit value adjustment (CVA), was always going to be a major focus for regulators post-crisis. The Basel Committee on Banking Supervision estimates two-thirds of credit risk losses during the financial crisis were caused by CVA volatility, rather than actual defaults – a figure that led the committee to propose a methodology for calculating a CVA capital charge in December 2009.
The original proposal, which included a so-called equivalent
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