Calibration of a first passage model for CVA applications

Credit Valuation Adjustment (CVA) is the price of an insurance contract covering the bank’s losses in the event that one of its trading counterparties defaults. QuIC, the sponsor of the proposed research project has developed “on paper” a comprehensive model of counterparty default that is still easily calibrated to various market observables. A key aspect of the model is that it accounts for correlation between the credit worthiness of its trading counterparties and market risk factors, such as interest and foreign exchange rates. The model also accounts for variations in the credit rating of the bank’s trading counterparties, which impacts CVA through the amount of collateral posted by the counterparty. The project will involve further development of this model and thorough testing vs. market data provided by Markit, QuIC’s new parent organization. QuIC expects to be able to sell products based on it.

Faculty Supervisor:

Andrey Pavlov

Student:

Partner:

Discipline:

Business

Sector:

Professional, scientific and technical services

University:

Simon Fraser University

Program:

Accelerate