Explanation:
CVA spread before downgrade is $128 - 74 = 54176- 154 = 22$ bps It needs to be adjusted by bps
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Q.3084 Jerome Collins is a trader at a VXR Financial Group which has entered into a swap agreement with Excellence Bank. VXR was recently downgraded from a rating of A to A-, while Excellence was downgraded from A- to BBB. During this time, the credit spread for VXR Financial Group has increased from 74 bps to 154 bps, while the credit spread for Excellence Bank has increased from 128 bps to 176 bps. Assuming there is a CVA agreement between both parties, by how much will the CVA spread need to be adjusted?
A
32 bps
B
54 bps
C
22 bps
D
98 bps
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