A trader needs to estimate the CVA on a swap. The exposure management group comes up with

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A trader needs to estimate the CVA on a swap. The exposure management group comes up with an EPE of $6 million. With the collateral, the recovery rate of the firm is 60%. The discount factor is 0.9. The probability of default (PD) of the counterparty is 2%. The management group funds that the collateral's PD is positively associated with the PD of the counterparty. EE considering this association is $7 million. What is the risk the association refers to and what is the CVA considering this risk?

A. Wrong-way Risk; 0.0504 m

B. Right-way Risk; 0.0504 m

C. Wrong-way Risk; 0.0432 m

D. Right-way Risk; 0.0432 m

Posted Date: Nov 28, 2021 11:25 PM

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A trader needs to estimate the CVA on a swap. The exposure management group comes up with

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Expert Answer:

ANSWER B is the correct option because it is positive... View the full answer

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