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6

CVA desks are not front office as they have no dealings with external clients. They can be considered "smart middle office" as they are a necessary part of the plumbing to facilitate the core activity of the bank, which is to trade as many derivatives as possible with clients, all of whom have varying levels of credit risk. Essentially, it allows traders in ...


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In principle you could say they mainly do risk management on bank level, but also make $ on the way trading out the counterparty risks. Quoting a post in Willmott: "here's how you make profits on a CVA desk. 1) you get paid by an internal desk to cover their c/p risk. you stay long and the credit tightens... you make money (similar to #2 below) 2) Prop ...


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Book: Counterparty Credit Risk: The new challenge for global financial markets by Jon Gregory


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http://defaultrisk.com/ Main Authors, Papers & Book links, recommendations. Should be all you need.


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I recommend the book The Basel II Risk Parameters. This book is primarily a collection of articles on the development, validation and stress testing of the risk parameters. The good thing about this book is that it provides an overview of the methodologies used which should be easy to follow for an experienced credit risk professional. However, it does not ...


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Modelling, Pricing, and Hedging Counterparty Credit Exposure: A Technical Guide (Springer Finance)


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In some banks the CVA desk is not expected to make profits (or losses). If they are having profit it is because they are overcharging CVA from other internal desks (and hence making those desks less competitive to external clients). If they are making losses it is because they are not pricing correctly the CVA (and therefore not able to buy enough hedges ...


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The rules relating to mark-to-market accounting have always been, in my opinion, ridiculous. Citigroup have to mark their liabilities to a fair value, and in this case, where it is their own debt, part of the pricing require that they consider the potential of their own default. The more likely it becomes, that the bank defaults the less the banks swaps is ...


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As I see it, the term $\Pi_B(t, T)$ is the value of the derivatives already owned by the bank. So, it's not some price they need to pay but an asset on the balance sheet. This increase in asset value leads to a profit. Balance sheet Example Imagine the balance sheet of OTC Subsidiary with rating A: Assets | Liabilities ...


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The CVA charge in Basel iii reporting increases the capital required for OTC derivatives trading. Apart from CVA, there are DVA and FVA that are important. The adjustments might be unitary reffered to as XVA, as the principle is the same.


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An IRS contract will state in detail what interest is payable to whom and when. The typical vanilla Xibor IRS at present has a CSA for daily-rebalanced cash accruing at OIS rates. So the coupons are fixed on Xibor, and between coupon payments the PV is collateralised with cash, rebalanced every day using OIS interest accrual. However, some old CSAs permit ...


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Claudio Albanese has a paper on the topic of GPUs and CVA computations. Here is one of his papers: link to paper


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This book is quite good as a starting point: http://www.amazon.co.uk/Counterparty-Credit-Risk-Challenge-Financial/dp/047068576X



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