CVA and credit curve

[Kavita.bhangdia]

Is CVA larger or smaller for upward sloping credit curve..
And why...

Hi David
Please can you help me with this question..

Thanks
Kavita

 

[Kavita.bhangdia]

One more question..Why is recovery not part of replacement cost?
Say my contract has an MTM of 400 USD with 25.¡.% recovery??? the Counterparty defaults.. Then my replacement cost will be 400 USD or 300. USD?
Is it 400USD because the recovery is uncertain due to bankruptcy and time taken to receive the amount.?

thanks
Kavita

 

[brian.field]

Replacement cost is simply that....what would it cost to replace it. What if you had to replace a position not because of a counterparts defaulted but because of a change in local law? Recovery would be irrelevant since there would be no default event.