An Accurate Solution for Credit Valuation Adjustment (CVA) and Wrong Way Risk

Tim Xiao

No 2rtya, FrenXiv from Center for Open Science

Abstract: 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. https://frenxiv.org/2rtya/download

Date: 2015-07-10
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: An Accurate Solution for Credit Valuation Adjustment (CVA) and Wrong Way Risk (2015)
Working Paper: An Accurate Solution for Credit Valuation Adjustment (CVA) and Wrong Way Risk (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:osf:frenxi:2rtya

DOI: 10.31219/osf.io/2rtya

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