avantage Presentation on “The practical challenges in implementing the Credit Valuation Adjustment (CVA) methodology”

In our latest briefing session we provided an opportunity for our guests to receive an update on the practical challenges in implementing the Credit Valuation Adjustment (CVA) methodology under Basel III and CRD IV.

Frederic Gielen, Partner, avantage, began proceedings by welcoming participants and providing an overview of the speakers and programme.  Frederic introduced the topic observing that the financial crisis and the large losses experienced by many financial institutions have highlighted that counterparty risk was not well understood. Frederic reference the European Commission’s Consultation Paper regarding proposed amendments to the Capital Requirements Directive (CRD IV). The Consultation Paper states that “the regulatory framework did not directly require capital for mark-to-market losses due to credit valuation adjustments (CVA). Roughly two-thirds of counterparty credit losses were due to CVA losses and only one third were due to actual defaults.”

Our first speaker, Ram Ananth, Senior Consultant, avantage, discussed the approach to build a CVA model for interest rate products, highlighting issues regarding systems architecture, model building blocks and modules, and model outputs.

Download a copy of Ram's presentation here.

Our second guest speaker, Jonathan Berryman, Head of Credit Analytics and Portfolio Reporting, Standard Bank International, went on to discuss the challenges in implementing a CVA model in an ever changing environment.

Download a copy of Jonathan's presentation here.

Due to adverse weather conditions, our third guest speaker, Colin Burke, Wholesale Model Validation, Lloyds Banking Group, was unable to attend. Colin has kindly agreed to make his presentation available; it provides interesting perspectives on validation strategy.

Download a copy of Colin's presentation here.

The session concluded with a question and answer session where each of the speakers responded to questions from the floor.

If you would like further information, please do not hesitate to contact us.