An Efficient, Distributable, Risk Neutral Framework for CVA Calculation

TL;DR

This paper reviews various CVA calculation methods and introduces a new efficient, scalable framework that enhances risk-neutral valuation of counterparty credit risk in derivatives.

Contribution

The paper presents a novel, distributable framework for CVA calculation that improves efficiency and scalability over existing methods.

Findings

Compared different CVA calculation approaches

Proposed a scalable computational framework

Demonstrated improved efficiency in CVA valuation

Abstract

The importance of counterparty credit risk to the derivative contracts was demonstrated consistently throughout the financial crisis of 2008. Accurate valuation of Credit value adjustment (CVA) is essential to reflect the economic values of these risks. In the present article, we reviewed several different approaches for calculating CVA, and compared the advantage and disadvantage for each method. We also introduced an more efficient and scalable computational framework for this calculation.