Comparing Alternate Methods For Calculating CVA Capital Charges Under Basel III
The global financial crisis brought counterparty credit risk and CVA very much into the spotlight. The Basel III proposals first ublished in December 2009 introduced changes to the Basel III rules and the need for a new capital charge against the volatility of CVA.
This ‘CVA VaR’ capital charge was always likely to be punitive since the Basel committee considered that it referenced two thirds of counterparty risk related losses. However, there are two ways for banks to compute CVA VaR, so
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