Contributor: Dan Travers

There are two ways in which a bank’s counterparty credit risk management can be made more efficient through the use of CVA. First, the allocation of credit risk appetite and second, the management of that credit risk once taken Credit risk appetite has traditionally been allocated by a “top-down” approach, where certain business lines are allowed to enter into deals with certain counterparties up to pre-determined limits. This determines the allocation of credit risk across the bank. Often credit risk appetite is not allocated at all between business units, but it is used up on a first-come-first-served basis until a hard stop. ... read more

Contributor: Dan Travers

Credit Valuation Adjustment (CVA) has become increasingly important in the derivatives trading world since the crisis as a way to price in the cost of counterparty risk. As such, there are an ever increasing number of banks adopting CVA as a core part of their process for managing counterparty credit risk. ... read more