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The presence of a mandatory break in a swap contract should reduce the CVA charge. That's because the CVA calculation models the default probability* swap market value while the swap is alive, so the calculation stops at the break date. There is one caveat: if a bank has a history of "waiving" mandatory breaks (i.e. In practice they never get exercised ) ...


This is an oft-debated topic among CVA/DVA professionals at banks. The key question, as pointed out by one of the comments, is whether a bank can derive some type of benefit from the increase in its own credit spread (and thereby make less of a CVA charge on the proposed transaction). The two sides to the argument are (a) on the one hand, surely by ...

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