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On the mathematical form of CVA in Basel III

Author

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  • Geurdes, Han / J. F.

Abstract

Credit 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.

Suggested Citation

  • Geurdes, Han / J. F., 2011. "On the mathematical form of CVA in Basel III," MPRA Paper 30955, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:30955
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    File URL: https://mpra.ub.uni-muenchen.de/30955/1/MPRA_paper_30955.pdf
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    More about this item

    Keywords

    CVA; CVaR; statistical methodology.;

    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

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