Development of CVA tools to analyze risk sensitivities

Credit valuation adjustment (CVA) is becoming an integral part of pricing any over-the-counter (OTC) trading portfolio, especially in the light of current market conditions. CVA is the difference between the portfolio values with and without accounting for the possibility of default of trading counterparties. BMO Capital Markets has launched a project to create a front office CVA system that will allow traders to analyze and hedge their credit exposure using adequate and appropriately calibrated models. The MITACS ACCELERATE intern will be involved in this project to assist traders with building spreadsheets for the risk sensitivity analysis (i.e. analysis of the CVA dependence on the model parameters and market conditions) and stress testing and with adopting an intermediate interest rate model to expedite an improved risk analysis.

Faculty Supervisor:

Dr. Luis Seco

Student:

Tunman (David) Chow

Partner:

BMO Capital Markets

Discipline:

Mathematics

Sector:

Finance, insurance and business

University:

University of Toronto