BCVA Formula

[VishIyer01]

Hi David,

May I request you to please clarify if survival probability is a requirement while we compute BCVA (CVA + DVA). In you previous edition of study notes ( May 2021) this was not included however as I noticed that study notes have been updated . GARP book as well as Gregory's 3rd edition (xVA challenge) doesn't include survival pd's .

Appreciate if you can confirm at earliest.

Thanks
Vish

 

[nc27]

The regulatory practice (IFRS 13) is to include the survival probabilities (marginal prob) into the BCVA calculation such that BCVA = CVA SURV - DVA SURV. And risky asset value = risk free asset value - BCVA.

 

[VishIyer01]

The regulatory practice (IFRS 13) is to include the survival probabilities (marginal prob) into the BCVA calculation such that BCVA = CVA SURV - DVA SURV. And risky asset value = risk free asset value - BCVA.

Thanks for the clarification. From an examination perspective (Dec 21) since the syllabus still reflects the "w/o" survival probability formula, what's your view ? should we stick to old or adhere to IFRS 13 compliance ? I think the question should be explicit else it will be an area of confusion .

 

[nc27]

Yes, in all cases, the question should provide some context. But, personally, I will stick with the above mentioned formula (in all the official report I wrote and ongoing audit I supervise, I use the BCVA with survival probabilities).

 

[VishIyer01]

Noted, Thanks.