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Counterparty risk: credit valuation adjustment variability and value-at-risk
Journal of Risk ( IF 0.915 ) Pub Date : 2019-01-01 , DOI: 10.21314/jor.2019.411
Michele Breton , Oussama Marzouk

The third installment of the Basel Accords advocates a capital charge against credit valuation adjustment (CVA) variability. We propose an efficient numerical approach that allows us to compute risk measures for the CVA process by assessing the distribution of the CVA at a given horizon. This approach relies on a recursive formulation of the CVA, yielding the adjustment as a function of both the time to maturity and the value of the risk factors. Numerical experiments are presented to illustrate the impact of various parameters and assumptions on the CVA distribution. More specifically, we investigate the impact of the constant exposure approximation and show that this assumption significantly affects the tail of the distribution of CVA movements. We also find that distortions between physical and risk-neutral probability measures have practically no impact on the dispersion of the CVA distribution. Finally, we analyze the effect of wrong-way risk and of early exercise opportunities on the evaluation of risk measures.

中文翻译:

交易对手风险:信用估值调整可变性和风险价值

巴塞尔协议的第三部分主张对信用估值调整 (CVA) 可变性进行资本支出。我们提出了一种有效的数值方法,允许我们通过评估 CVA 在给定范围内的分布来计算 CVA 过程的风险度量。这种方法依赖于 CVA 的递归公式,产生作为到期时间和风险因素价值的函数的调整。数值实验用于说明各种参数和假设对 CVA 分布的影响。更具体地说,我们研究了恒定曝光近似的影响,并表明该假设显着影响了 CVA 运动分布的尾部。我们还发现物理和风险中性概率度量之间的扭曲实际上对 CVA 分布的分散没有影响。最后,我们分析了错向风险和早期锻炼机会对风险措施评估的影响。
更新日期:2019-01-01
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