Explanation

BCVA (Bilateral CVA) calculation requires specifying from whose perspective the calculation is being done. The question is incomplete as it doesn't specify whether we're calculating from the perspective of:

• The financial institution
• The counterparty

BCVA Formula: BCVA = CVA - DVA Where:

• CVA = LGD_counterparty × EPE × Spread_counterparty
• DVA = LGD_institution × ENE × Spread_institution

Given data:

• Average EPE = 5% (0.05)
• Average ENE = -3% (-0.03)
• Counterparty credit spread = 300 bps (0.03)
• Financial institution credit spread = 200 bps (0.02)

Assuming LGD = 60% (typical assumption when not specified):

From financial institution's perspective:

• CVA = 0.60 × 0.05 × 0.03 = 0.0009 (0.09%)
• DVA = 0.60 × (-0.03) × 0.02 = -0.00036 (-0.036%)
• BCVA = 0.0009 - (-0.00036) = 0.00126 (0.126%)

From counterparty's perspective: The roles would be reversed.

Since the question is incomplete about the perspective, this highlights the importance of clearly specifying whose viewpoint the BCVA calculation is being done from.