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A Methodology Proposal for CVA-VaR
Year Of Publication: 2011
Month Of Publication: January
Pages: 16
Download Count: 24
View Count: 1637
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 4-18-2011
Publisher: Administrator
Summary
A Value at Risk methodology for credit value adjustment is proposed. The approach considers the movement of both counterparties' independent default risks and their exposures at the presence of the corresponding hedging positions. The historical times series can be used to generate the risk factor scenarios. The forward linear sensitivities are obtained from regressing the exposures against the driving risk factors, therefore, requiring only one simulation run. The application of the methodology is applied to a long European call option, for a range of strike values, where the results of the VaR approach is compared to the actual repricing of the CVA for each of the historical elements in the time series.
Author(s)
Koehler, Etienne Sign in to follow this author
Alavian, Shahram Sign in to follow this author
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