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CVA Risk

CVA risk is the risk of mark-to-market losses of CVAs (Credit Valuation Adjustments) of derivative instruments. Currently, the majority of banks use the standardised approach for the calculation of the capital charge for CVA risk.
In July 2015, the Basel Committee published a consultative document proposing changes to the current CVA risk framework. The document specifies several approaches for CVA risk calculation addressing some weaknesses of the current framework. A further goal is the alignment with the Fundamental Review of the Trading Book. A brief summary of the proposal is available on request. Additionally, the new approaches are analysed in a White Paper jointly published by d-fine and Quantifi1. Our calculations for test portfolios applying different approaches show the possible impact the new framework may have on capital charges.

The consultative document published by EBA in November 2015 contains guidelines on the treatment of CVA risk under the supervisory review and evaluation process (SREP). It proposes the use of four thresholds to determine the relevance and materiality of CVA risk for a financial institution, as well as the corresponding additional own fund requirements. In order to support the calibration of those thresholds, a Quantitative Impact Study is being carried out by EBA until the end of January 2016.

 

You are wondering how to integrate CVA risk management in your processes? Our consultants are familiar with industry best practices and understand the unique needs of our customers. We will guide you through the complete process, from an initial analysis to the integration of CVA risk calculations into your market risk model. Our solutions are tailored to your preferences and constraints related to exposure calculation and risk model.

 

Our team has hands-on project experience covering all aspects of measuring and managing CVA risk:

  • We will discuss with you the potential impact of the latest publications.
  • If you are taking part in the QIS, we will optimally support you with our experience and our d-fine QIS Tool.

We are happy to arrange a meeting with your experts to discuss this important topic. We welcome you to contact us! Please call us at +49 69 907370 or send an email to marktrisiko@remove-this.d-fine.de, subject "CVA risk".

 

Click here for further information on our consulting services on market risk.

 


1 Please click here for a one-hour summary of our whitepaper in the form of a webinar.