What is Credit Valuation Adjustment?
Credit Valuation Adjustment A regulatory adjustment to the fair value of derivative instruments to account for counterparty credit risk, as mandated by Basel III. CVA reflects the market value of counterparty default risk on over-the-counter derivatives.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Credit Valuation Adjustment” Used in Practice?
Banks are required to calculate credit valuation adjustment charges for derivative portfolios to reflect counterparty risk as per Basel III.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Credit Valuation Adjustment?
A regulatory adjustment to the fair value of derivative instruments to account for counterparty credit risk, as mandated by Basel III. CVA reflects the market value of counterparty default risk on over-the-counter derivatives.
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