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Expected Credit Loss vs. Credit Value Adjustment: A Comparative Analysis

Vivien Brunel, Stéphane Crépey and Monique Jeanblanc
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Vivien Brunel: Société Générale, Léonard de Vinci Pôle Universitaire, Finance Lab, France
Stéphane Crépey: Laboratoire de mathématiques et modélisation d’Évry, France
Monique Jeanblanc: Laboratoire de mathématiques et modélisation d’Évry, France

Bankers, Markets & Investors, 2016, issue 141, 6-18

Abstract: The recent publication of the IFRS 9 norms related to collective provisions for non defaulted instruments has settled a new vision to banking book portfolios. In this paper we show that the IFRS 9 provision measured through the Expected Credit Loss (ECL), inspired from a market vision on loan books, is very similar to the Credit Value Adjustment (CVA) for derivative exposures. However, even if the underlying formulas are identical, the metrics and parameters are not the same. Hence, though ECL and CVA measure similar effects, they involve different modeling challenges.

Keywords: Expected Credit Loss (ECL); IFRS 9; Credit Value Adjustment (CVA); Counterparty Risk. (search for similar items in EconPapers)
JEL-codes: G13 G21 G22 G23 G24 (search for similar items in EconPapers)
Date: 2016
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