Tid: 27 januari 2014 kl 15.15-16.00.Seminarierummet 3721, Institutionen för matematik, KTH, Lindstedtsvägen 25, plan 7. Karta!
Föredragshållare: Dan Franzen och Otto Sjöholm
Titel: Credit Valuation Adjustment - Theory and Practice (Master Thesis)
Abstract This thesis is intended to give an overview of credit valuation adjustment (CVA) and adjacent concepts. Firstly, the historical events that preceded the initiative to reform the Basel regulations and to introduce CVA as a core component of counterparty credit risk are illustrated. After some conceptual background material, a journey is taken through the regulatory aspects of CVA. All the methods for calculating the regulatory CVA capital charge are explained in detail and potential challenges with the methods are discussed. Further, the document will analyse in greater depth the two most common methods for calculating the credit valuation adjustment; the internal model method (IMM) and the current exposure method (CEM). The differences between these two methods are explained mathematically and analysed. This comparison is supported by simulations of portfolios containing interest rate swap contracts with different time to maturity and of counterparties with varying credit ratings. One concluding observations is that credit valuation adjustment is a measure of central importance within counter- party credit risk. Further, it is shown that IMM has some important advantages over CEM, especially when it comes to model connection with reality. Finally, some possible future work to be done within the topic area is suggested.
|Sidansvarig: Filip Lindskog