CVA calculation for CDS on super senior ABS CDO

Li, Hui (2008): CVA calculation for CDS on super senior ABS CDO. Unpublished.

Abstract

The way monoline insurers estimate the FAS 157 credit value adjustments (CVA) on their ABS CDO insurance portfolios vastly overstates the benefits. We propose a simple method that is more accurate, especially when the counterparty default risk is high. The counterparty default recovery rate is also a critical input.

• Item Type: MPRA Paper
• Language: English
• Keywords: Credit Value Adjustment, Super Senior ABS CDO, Monoline insurer
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure

References

[1] M. Pykhtin and S. Zhu, “A Guide to Modeling Counterparty Credit Risk”, GARP Risk Review, July/August 2007 Issue 37 p16;

[2] D. Brigo and K. Chourdakis, “Counterparty Risk for Credit Default Swaps: Impact of spread volatility and default correlation”, FitchSolutions, May 2008;

[3] S. Amraoui and S. Hitier, “Optimal Stochastic Recovery for Base Correlation”, June 2008.