Name: An Accurate Solution for Credit Value Adjustment (CVA) and Wrong Way Risk
Creator: Tim Xiao
Keywords: bepress|Social and Behavioral Sciences|Economics, Economics, Knowledge management, Arabixiv|Social and Behavioral Sciences, right way risk, E44 - Financial Markets and the Macroeconomy, Liquidation, jel:E44, least square Monte Carlo, Trading Volume

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type , Preprint , Report 01 Jan 2013 English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

Authors: Tim Xiao;

doi: 10.2139/ssrn.2267508 , 10.31229/osf.io/yuvjs , 10.3905/jfi.2015.2015.1.040 , 10.31226/osf.io/2rtya , 10.22541/au.156881621.17931411 , 10.3905/jfi.2015.25.1.084 , 10.31221/osf.io/2cqbg , 10.17613/szjz-g991 , 10.5281/zenodo.3365363 , 10.17613/3jv70-4cq74 , 10.5281/zenodo.3365362 , 10.6084/m9.figshare.8259077 , 10.6084/m9.figshare.8259077.v1 , 10.6084/m9.figshare.8259077.v2

handle: 10419/198046

An Accurate Solution for Credit Value Adjustment (CVA) and Wrong Way Risk

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Abstract

This paper presents a Least Square Monte Carlo approach for accurately calculating credit value adjustment (CVA). In contrast to previous studies, the model relies on the probability distribution of a default time/jump rather than the default time itself, as the default time is usually inaccessible. As such, the model can achieve a high order of accuracy with a relatively easy implementation. We find that the valuation of a defaultable derivative is normally determined via backward induction when their payoffs could be positive or negative. Moreover, the model can naturally capture wrong or right way risk.

Related Organizations

University of Toronto
Canada
Ludwig-Maximilians-Universität München
Germany

Keywords

bepress|Social and Behavioral Sciences|Economics, Economics, Knowledge management, Arabixiv|Social and Behavioral Sciences, right way risk, E44 - Financial Markets and the Macroeconomy, Liquidation, least square Monte Carlo, Trading Volume, Financial Risk and Risk Management, credit value adjustment (CVA), wrong way risk, right way risk, credit risk modeling, least square Monte Carlo, default time approach (DTA), default probability approach (DPA), collateralization, margin and netting., G12 - Asset Pricing, default time approach (DTA), Bond Interest Rates, Goodwill, collaterilization, ddc:330, G33 - Bankruptcy, SocArXiv|Social and Behavioral Sciences|Economics, credit value adjustment (CVA), wrong way risk, right way risk, credit risk modeling, risky valuation, default time approach (DTA), default probability approach (DPA), collateralization, margin and netting., Commercial statistics, bepress|Social and Behavioral Sciences|Economics|Finance, credit risk modeling, G32 - Financing Policy, default probability approach (DPA), SocArXiv|Social and Behavioral Sciences|Economics|Finance, Arabixiv|Social and Behavioral Sciences|Economics|Finance, bepress|Social and Behavioral Sciences, wrong way risk, Value of Firms, SocArXiv|Social and Behavioral Sciences, Arabixiv|Social and Behavioral Sciences|Economics, credit value adjustment (CVA), margin and netting, Capital and Ownership Structure, jel: jel:E44, jel: jel:G12, jel: jel:G32, jel: jel:G33

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