Credit Value Adjustment
(2013) FMS820 20132Mathematical Statistics
 Abstract (Swedish)
 In this thesis the topic Counterparty Credit Risk in OTC derivative transactions
is described and the pricing component arising from it, i.e., the Credit Value Adjustment
(CVA), is discussed. The unilateral CVA and DVA are derived in the case
where one party engaging in a transaction is assumed to be defaultable and bilateral
CVA is derived in the case where both parties in a transaction are assumed to
be defaultable. In this context hedging aspects are also examined and riskneutral
pricing of CVA is discussed.
The setup of a numerical tool for CVA computations is then described and
a simple tool for computing CVA for single interest rate swaps is developed. In
connection the input data needed for the computations is discussed... (More)  In this thesis the topic Counterparty Credit Risk in OTC derivative transactions
is described and the pricing component arising from it, i.e., the Credit Value Adjustment
(CVA), is discussed. The unilateral CVA and DVA are derived in the case
where one party engaging in a transaction is assumed to be defaultable and bilateral
CVA is derived in the case where both parties in a transaction are assumed to
be defaultable. In this context hedging aspects are also examined and riskneutral
pricing of CVA is discussed.
The setup of a numerical tool for CVA computations is then described and
a simple tool for computing CVA for single interest rate swaps is developed. In
connection the input data needed for the computations is discussed and a method
for constructing proxy CDS spread curves, where there is a lack of quoted CDS
spreads referenced to a particular counterparty in the market, is described.
As a second part the relation between CVA from a regulatory perspective, driven
by the CVA capital charge introduced in the third Basel accord, CVA from an
accounting perspective, driven by IFRS, and CVA from a market perspective, as a
potentially tradeable asset, is discussed. In connection to this the standardised and
the advanced approaches to computing the CVA capital charge are examined and
the similarities and dierences to the market CVA are claried. The implications
of implementing CVA in the pricing of OTC derivatives within a bank are nally
discussed. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/studentpapers/record/4057708
 author
 Ahlberg, Johan
 supervisor

 Erik LindstrÃ¶m ^{LU}
 organization
 course
 FMS820 20132
 year
 2013
 type
 H2  Master's Degree (Two Years)
 subject
 keywords
 Basel III, Bilateral CVA, Counterparty credit risk, Credit value adjustment, CVA, CVA capital charge, DVA, OTC derivatives.
 language
 English
 id
 4057708
 date added to LUP
 20130924 11:04:53
 date last changed
 20130924 11:04:53
@misc{4057708, abstract = {In this thesis the topic Counterparty Credit Risk in OTC derivative transactions is described and the pricing component arising from it, i.e., the Credit Value Adjustment (CVA), is discussed. The unilateral CVA and DVA are derived in the case where one party engaging in a transaction is assumed to be defaultable and bilateral CVA is derived in the case where both parties in a transaction are assumed to be defaultable. In this context hedging aspects are also examined and riskneutral pricing of CVA is discussed. The setup of a numerical tool for CVA computations is then described and a simple tool for computing CVA for single interest rate swaps is developed. In connection the input data needed for the computations is discussed and a method for constructing proxy CDS spread curves, where there is a lack of quoted CDS spreads referenced to a particular counterparty in the market, is described. As a second part the relation between CVA from a regulatory perspective, driven by the CVA capital charge introduced in the third Basel accord, CVA from an accounting perspective, driven by IFRS, and CVA from a market perspective, as a potentially tradeable asset, is discussed. In connection to this the standardised and the advanced approaches to computing the CVA capital charge are examined and the similarities and dierences to the market CVA are claried. The implications of implementing CVA in the pricing of OTC derivatives within a bank are nally discussed.}, author = {Ahlberg, Johan}, keyword = {Basel III,Bilateral CVA,Counterparty credit risk,Credit value adjustment,CVA,CVA capital charge,DVA,OTC derivatives.}, language = {eng}, note = {Student Paper}, title = {Credit Value Adjustment}, year = {2013}, }