Art and Science: Credit Valuation Challenge II

dmitry-pugachevsky-quantifi
Dmitry Pugachevsky, director of research at Quantifi

In part one of this two-part feature, published last month, several challenges were identified with the calculation of credit valuation adjustment (CVA), the numerical value extrapolated to convey the likelihood of counterparty default risk with respect to derivatives trades. Large computer grids, Monte Carlo simulations, and vast amounts of data are required to calculate CVA on an entire portfolio, even for overnight batch runs. For incremental, pre-deal CVA formulated as close to real time as

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