CVA and DVA

QuantMan2318

Well-Known Member
Subscriber
Hi @Shadma
Can you be a bit more clear? Which formula are you referring to in CVA?

The value for CVA is just:

\[ (1- Recovery Rate) * \Sigma_{i=1}^m DF(t_i) * EE(t_i) * PD(t_{i-1},t_i) \]

So which part are you referring to?
 

Flashback

Active Member
While calculating CVA and its properties do we need to use negative sign???

Value of CVA is marked with positive prefix as this is considered as a cost.
Value of DVA is usually marked with negative prefix as a cost deduction.
Thus, stand-alone CVA cannot be negative while net BCVA can be negative in the event of larger DVA value.
Hope that might help.
 

Shadma

New Member
As per Gregory chapter 14 he has introduced a negative sign in CVA formula, so am a little confused as to what should be the impact of credit spread and recovery on CVA. Whether we have to consider the magnitude or sign also
 

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Flashback

Active Member
That’s trivial. If you use negative prefix for CVA, you must use a positive one for DVA in BCVA equation and vice versa. Same as with any other cost recognition in ledgers.
 
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