Trésorier magazine - n°77 - 1er trimestre 2012 - (Page 36)

CORPORATE FINANCE CVA: Do you know you’re paying a credit charge on your trades? The importance of quantifying and managing counterparty credit risk in the derivatives market has never been greater. One of the most important effects of the economic crisis on OTC derivatives markets has been greater attention to and valuation of the credit risk inherent in any derivatives trade. Credit Valuation Adjustment (CVA) is rapidly emerging as the industry standard. t is now imperative that corporate treasury departments understand CVA and implement systems capable of handling it. Ultimately CVA will benefit the entire derivatives industry from dealers to end users by more accurately measuring the credit risk derivatives users are carrying. Corporate treasury departments which fall significantly behind the rest of the market will face several consequences ranging from misunderstanding the effectiveness of their funding activities to being taken advantage of by dealers at trade time. I Levels of implementation and readiness for the transition to CVA based credit protection vary widely. The greatest level of CVA implementation is in interest rates. We can expect it to be gradually applied across all asset classes; this will enable coherent measures of credit risk across all derivatives activities within an institution. Where: DefaultProbability(t) = the probability of the counterparty defaulting at or before time t, based on the counterparty’s CDS curve RecoveryRate = the expected recovery rate for senior creditors in the event of default ExpectedLoss(t) = The expectation of positive MTM as of time t i.e. integration over the positive MTM portion of the implied distribution To put this in simple terms, we are answering the following two questions: 1.What is the likelihood of my counterparty defaulting? 2. If my counterparty defaults, how much money do I expect to lose? For trades which fall under a CSA with a non-zero threshold, the cal- CVA CALCULATION FOR A SINGLE TRADE CVA is a probabilistic calculation of expected losses due to the potential for counterparty default for trades. First let us consider the calculation of CVA for a particular point in time between now and the final maturity date of a specific trade. The calculation for trades with no collateralization for time t is: CVA(t) = DefaultProbability(t) * ExpectedLoss(t) * (1 – RecoveryRate) CHARGING FOR INHERENT COUNTERPARTY RISK CVA is a critical component of derivative pricing, particularly for uncollateralized trades. It allows the adjustment of both mark-to-market valuations as well as new trade pricing to reflect the inherent counterparty credit risk associated with any trade which is not 100% collateralized. 36

Table des matières de la publication Trésorier magazine - n°77 - 1er trimestre 2012

Sommaire
EDITORIAL - 10ème anniversaire de l'EACT
FINANCIAL HIGHLIGHTS
INTERVIEW - Oleg Williamson, Treasury Manager EMEA of Parker Hannifin
FOCUS
FORUM OF ADVERTISERS
CORPORATE FINANCE
TREASURERS' ASSOCIATIONS
NEWS

Trésorier magazine - n°77 - 1er trimestre 2012

http://www.nxtbook.fr/newpress/atel/99-4T2017
http://www.nxtbook.fr/newpress/atel/98-3T2017
http://www.nxtbook.fr/newpress/atel/97-2T2017
http://www.nxtbook.fr/newpress/atel/96-1T2017
http://www.nxtbook.fr/newpress/atel/95-4T2016
http://www.nxtbook.fr/newpress/atel/94-3T2016
http://www.nxtbook.fr/newpress/atel/93-2T2016
http://www.nxtbook.fr/newpress/atel/le-magazine-du-tresorier/92-1T2016
http://www.nxtbook.fr/newpress/atel/le-magazine-du-tresorier/91-4T2015
http://www.nxtbook.fr/newpress/atel/le-magazine-du-tresorier/90-3T2015
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/89-2T2015
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/88-1T2015
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/87-4T2014
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/86-3T2014
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/85-2T2014
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/84-1T2014
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/83-4T2013
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/82-3T2013
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/81-2T2013
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/80-1T2013
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/79-3T2012
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/78-2T2012
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/77-1T2012
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/76-4T2011
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/75-3T2011
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/74-2T2011
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/73-1T2011
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/72-4T2010
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/71-3T2010
https://www.nxtbook.com/newpress/atel/le-magazine-du-tresorier/70-2T2010
https://www.nxtbook.com/newpress/atel/le_magazine_du_tresorier-69-1T2010
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-68-4T2009
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-67-3T2009
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-66-2T2009
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-65-1T2009
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-63-3T2008
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-64-4T2008
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-62-2T2008
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-61-1T2008
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-60-4T2007
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-59-3T2007
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-58-2T2007
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-57-1T2007
https://www.nxtbook.com/newpress/atel/lemagazinedutresorier-56-4T2006
https://www.nxtbookmedia.com