Hi David and everyone,
1. I had trouble to understanding one sentence when talking about hedging bank's liability side(EASA) of CVA formula(CVA=EASA-EBSB) "the bank-specific or idiosyncratic risk is more difficult to hedge and would require that the bank to sell credit protection on itself".
Why this selling can hedge idiosyncratic risk of the bank?
2. Why do people want to hedge liability side of CVA?
Thanks!
1. I had trouble to understanding one sentence when talking about hedging bank's liability side(EASA) of CVA formula(CVA=EASA-EBSB) "the bank-specific or idiosyncratic risk is more difficult to hedge and would require that the bank to sell credit protection on itself".
Why this selling can hedge idiosyncratic risk of the bank?
2. Why do people want to hedge liability side of CVA?
Thanks!
