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Explanation:
The statement is partially correct but has a key inaccuracy:
Correct part: BCVA (Bilateral CVA) does incorporate the probability of the counterparty's survival, unlike unilateral CVA which only considers the counterparty's default.
Incorrect part: BCVA uses ENE (Expected Negative Exposure) for the institution's own default risk component, not EPE.
Key differences:
Therefore, option A stating "The statement is correct with regard to EPE only" is accurate because the investor's statement correctly identifies the survival probability aspect but incorrectly states that BCVA uses EPE for both components.
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An investor said: "The formula for BCVA is similar to the formula for CVA, except that the BCVA formula incorporates the probability of the counterparty's survival and uses EPE." Which of the following statements is accurate?
A
The statement is correct with regard to EPE only.
B