TriOptima: Hedging error in CVA
The Probability Matrix Method, used to model Counterparty Credit Risk (CCR), relies on common transition probability matrices for generating scenarios and pricing netting sets. This allows the use of consistent models for simulation and pricing when computing and hedging X-Value Adjustments (XVA). Traditional XVA systems separate instead the tasks of generating market factor paths and pricing netting set values. The pricing models generally imply a different dynamic behaviour of the underlying
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