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Explanation:
The CVA as a running spread would be computed as:
CVA = EPE * Spread
= 13% * 225 = 29.25 bps or 0.2925%
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Q.3085 Jon Boyle is a trader at a big German bank and needs a quick approximation of the CVA spread on a swap. The risk management group at the bank comes up with an expected potential exposure of 13%. The counterparty’s credit spread is around 225 basis points per year. Based on this information, the CVA, as a running spread in percentage terms, is closest to:
A
29.25%
B
5.77%
C
0.2925%
D
0.577%