On the mathematical form of CVA in Basel III.

Geurdes, Han / J. F. (2011): On the mathematical form of CVA in Basel III.

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.

• Item Type: MPRA Paper
• Commentary on: Eprints 0 not found.
• Language: English
• Keywords: CVA, CVaR, statistical methodology.
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; A - General Economics and Teaching > A1 - General Economics > A14 - Sociology of Economics; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics

References

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