On the mathematical form of CVA in Basel III

Geurdes, Han / J. F.

MPRA Paper from University Library of Munich, Germany

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.

Keywords: CVA; CVaR; statistical methodology. (search for similar items in EconPapers)
JEL-codes: A14 C01 C02 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-ban and nep-rmg
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