On the mathematical form of CVA in Basel III
AbstractCredit valuation adjustment in Basel III is studied from the perspective of the mathematics involved. A bank covers mark-to-market losses for expected counterparty risk with a CVA capital charge. The CVA is known as credit valuation adjustments. In this paper it will be argued that CVA and conditioned value at risk (CVaR) have a common mathematical ancestor. The question is raised why the Basel committee, from the perspective of CVaR, has selected a specific parameterization. It is argued that a fine-tuned supervision, on the longer run, will be beneficial for counterparties with a better control over their spread.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 30955.
Date of creation: 2011
Date of revision:
CVA; CVaR; statistical methodology.;
Find related papers by JEL classification:
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
- A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-30 (All new papers)
- NEP-BAN-2011-05-30 (Banking)
- NEP-RMG-2011-05-30 (Risk Management)
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