Paris-based Société Générale Corporate and Investment Banking (SGCIB) has partnered with Algorithmics for the development of a credit valuation adjustment (CVA) solution.
SGCIB will use the software to price and manage counterparty credit risk over all asset classes on its CVA desk. The Algorithmics solution includes the vendor's Real-Time Credit Engine, and has the ability to deliver end-of-day and Monte Carlo-based potential future exposures, as well as CVA analytics, on an incremental basis.
"Intelligent charging for credit risk is of fundamental importance; we've invested five years of research into the challenge of delivering accurate CVA measures at speeds that traders demand," says Bob Boettcher, senior director of market and credit risk at Algorithmics. "Société Générale's CVA desk project will support more risk-aware trading decisions with a consistent analytical and technical framework for risk managers and traders."
What is the CVA desk?
The accurate measurement and management of counterparty credit risk has become an area of focus since the financial crisis, as previously, many derivatives portfolios were marked-to-market without counterparty risk considerations being taken into account ─ so-called risk-free value. As it represents the difference between the valuation of a portfolio without risk measurement and that of one where the potential of counterparty default is taken into account, CVA is essentially the market value of counterparty credit risk. Changes in attitude and necessity toward tue values of derivatives portfolios have meant that CVA has become a crucial, although separated, aspect of a company's risk management architecture.
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