How to calculate CVA per trade

PUBLISHED:
12 December 2016
6 AM

BY:
Thomas Griffiths

Recognising the importance of accuracy in public reporting, triCalculate now incorporates a mathematically sound and easy to produce methodology that splits the CVA of a netting set into a value for each of the underlying trades to accommodate new balance sheet reporting requirements.

CVA is defined as the valuation adjustment required to take into account counterparty risk. By definition it is calculated at a counterparty / netting set level. While it is not necessarily intuitive to look at the CVA on a trade by trade basis, triCalculate is able to provide a way to achieve the new accounting standards for balance sheet reporting based on the Euler allocation methodology.

How it Works

triCalculate incorporates the Euler allocation methodology to achieve valuation per trade. This technique allocates CVA to a trade by measuring the impact each individual trade has on the overall netting set CVA using an infinitesimally small shift in a trade’s notional. By ticking a simple batch setting users are able to include the Euler allocation calculation in their numbers. This will enable a firm’s finance function to create the balance sheet as they see fit without the constraint of producing numbers on a netting set level.

To include the Euler allocation functionality in your triCalculate results, simply follow these steps:

  1. Set up a batch as usual using the ‘New Batch’ button in the ‘Batches’ page with the base currency of your choice.
  2. Email [email protected]<script data-cfhash="f9e31" type="text/javascript">/* */</script> and ask that your batch include the Euler Allocation.
  3. Upload your trade file, credit curve file and any collateral details as usual into the batch in the ‘Files’ page.
  4. Use the ‘Run Batch’ page to select the trade file you want for calculation.
  5. View your results in the ‘Portfolio’ tab. You will see a column showing the CVA per trade in addition to the usual PVP checks. This can also easily be exported to Excel using the ‘Export’ button.

Questions 

If you have any questions about triCalculate, or would like assistance viewing, understanding or analysing your XVA results and calculations please contact us via email at [email protected] or speak to your local office.