CVA Excel Calculator for Derivatives (Credit Value Adjustment)
Originally published: 17/09/2018 09:22
Last version published: 17/09/2018 09:24
Publication number: ELQ-29871-2
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CVA Excel Calculator for Derivatives (Credit Value Adjustment)

Calculation of Credit Value Adjustment and Exposure Metrics

Fall of Lehman Brothers in 2008 sparked widespread attention to counterparty credit risk. The credit crisis has brought CCR to prominence now that the attitude of “too big to fail” is dispelled and CCR is now considered by many to be the key financial risk. CCR covers an enormous volume of over-the-counter (OTC) derivatives. The burgeoning derivatives market has grown exponentially over the last decade (Figure 1). It was the case that derivatives were traded between two worthy bankruptcy remote counterparties with triple-A ratings. As the market grew and innovation in collateral arrangements became more sophisticated, more and more of less worthy institutions started to enter into OTC contracts. The years 2007 and 2008 which marked the start of the crisis brought the notion that “ big too can fail” and clearly highlighted to the market participants that derivatives are not all that safe a set of financial risk management instruments if one does not measure and manage CCR.

Risc Mirror has developed an application which demonstrates our understanding and serves to help as an accelerator to implementing a counterparty credit risk framework.

How is Counterparty Risk Calculated?

Calculation of counterparty exposures is based on the following:

1) Scenario Generation of a large number of paths for the future market evolution of all risk factors
2) Valuation: Calculation of the value of a trade on each path for a selected time grid
3) Computation of Credit Value Adjustment
- Risk Factors Used:
- Interest Rates
- Foreign Exchange Rates
- Hazard Rates
- Equity Price/Index

Model allows calibration of the underlying short rate interest models using Maximum Likelihood Estimation.
Stochastic Models used in Scenario Generation:
FX/EQ: Geometric Brownian Motion
IR : Vasicek Short Rate Model
Default: Exponential Vasicek Model

The application covers the following OTC Derivatives:
Interest Rate Related: Swaps, Swaption, Cap/Floor
Credit Default Swap
Equity Swap, Forwards, Exotic Options (Asian, Barrier, Lookback and Binary)
CCY Swap and FX Forwards

To open the model:
Username: John
Password: Password1

This Best Practice includes
1 EXCEL Model and 1 Word Document

Acquire business license for $299.00

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Further information

To compute the Unilateral Credit Value Adjustment for a Bank entering into a derivative contract

To find the credit cost of a counterparty when a bank enters into a derivative contract

It is only good as an approximate.


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  • cns digitalmarketing
    * comment deleted *
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    • Mayank Seksaria, CFA
      Hi Satish - I am interested in evaluating the tool prior to buying the file. How can I do that? Also is it integrated with Bloomberg? Thanks, Mayank
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