An Accurate Solution for Credit Valuation Adjustment (CVA) and Wrong Way Risk
No 2cqbg, arabixiv.org from Center for Open Science
This paper presents a Least Square Monte Carlo approach for accurately calculating credit value adjustment (CVA). In contrast to previous studies, the model relies on the probability distribution of a default time/jump rather than the default time itself, as the default time is usually inaccessible. As such, the model can achieve a high order of accuracy with a relatively easy implementation. We find that the valuation of a defaultable derivative is normally determined via backward induction when their payoffs could be positive or negative. Moreover, the model can naturally capture wrong or right way risk.
References: Add references at CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:osf:arabix:2cqbg
Access Statistics for this paper
More papers in arabixiv.org from Center for Open Science
Bibliographic data for series maintained by OSF ().