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Answer: Marginal CVA because he could break down netted trades into trade level contributions.
## Explanation **Marginal CVA** is the correct approach when a risk manager wants to understand which trades have the greatest impact on a counterparty's CVA because: - **Marginal CVA** measures the contribution of each individual trade to the total CVA while accounting for netting agreements - It allows breaking down netted trades into trade-level contributions - This helps identify which specific trades are driving the counterparty credit risk exposure - It's particularly useful for portfolio management and risk allocation decisions **Incremental CVA**, on the other hand, measures the change in CVA when adding a new trade to an existing portfolio, which is different from analyzing the contribution of existing trades. Therefore, option B correctly identifies that Marginal CVA enables breaking down netted trades into trade-level contributions to understand their individual impact on the counterparty's CVA.
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With respect to the CVA calculation, which of the following statements is correct when a risk manager wishes to understand which trades have the greatest impact on a counterparty's CVA? The manager would use:
A
Incremental CVA because it accounts for the change in CVA once the new trade is priced, accounting for netting.
B
Marginal CVA because he could break down netted trades into trade level contributions.
C
Incremental CVA because he could break down netted trades into trade level contributions.
D
Marginal CVA because it accounts for the change in CVA once the new trade is priced, accounting for netting.
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