CVA Pricing Analysis for Global Financial Institution
A global financial institution operating in over 50 countries with over 10 million customers, the client manages a large portfolio of both vanilla and exotic OTC derivatives across multiple currencies and asset classes including credit, interest rates and foreign exchange. The client is also a customer to the street and is charged CVA by dealer banks on derivative transactions.

Requirements

The client wanted to gain a better understanding of the mechanics of CVA pricing, especially on transactions involving multiple currencies. The firm’s widening credit spread dramatically increased CVA charges levied by dealers. Therefore the client wanted more transparency and a second opinion these CVA charges.

Approach

Quantifi specified all market data needed to perform the calculations, which the client provided along with terms and conditions of the transactions. The client also provided a sample of dealer quotes for comparison purposes. Quantifi recommended a set of parameters to use in configuring the Monte Carlo simulation, based on transaction types and industry best practice.


The client wanted to gain a better understanding of the mechanics of CVA pricing,
especially on transactions involving multiple currencies.

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