Getting CVA up and running

The credit value adjustment that crystallises counterparty risk in a derivatives price is generally thought of as an upfront payment, but could equally well be converted into a running premium in appropriate products. But the obvious ways to do this lead to inconsistencies, or are computationally burdensome. Here, Frédéric Vrins and Jon Gregory show how an analytic approximation can negotiate this

An important consequence of the recent financial crisis is the necessity, due to both market volatility and regulatory constraints, for banks to include counterparty risk in their profit and loss. The adjustment made to the price of an over-the-counter derivatives transaction as a result of the risky nature of their counterparty is known as the credit value adjustment (CVA). The CVA becomes an effective price factor of a deal, just like the interest rate or the exchange rate, and can often have

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here