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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Regulatory CVA Capital Charge under the New Basel III Framework |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 70 |
| Date | 2019 |
| Abstract Text | During the 2008 global nancial crisis deterioration in the creditworthiness of a counterparty was a major source of losses for the banks, exceeding in many cases losses arising from outright defaults. This highlighted the importance of hedging against counterparty credit risk, particularly when it is correlated with mark-to-market losses. CVA (Credit Valuation Adjustment) is a model that was designed to capture this risk by measuring the difference between true portfolio value (that takes into account the possibility of a counterparty's default) and the risk-free portfolio value. Under the nalised version of the Basel III Accord, which is expected to take effect in 2022, the revised CVA framework offers a more risk-sensitive approach by taking into account the market risks that affect the exposures and their associated hedges. The new framework replaces the Standardized Method (SM) and Current Exposure Method (CEM) with the new Standardized Approach (SA-CCR) for calculating EAD. Firms with no regulatory approval for Internal Model Method (IMM) can calculate CVA by using the Basic Approach (BA-CVA) and the SA-CCR component. For rms with IMM approval there is the choice to use either the basic approach or the standardized one (SA-CVA). The aim of the thesis will be to compare CVA charges under these different cases for a given portfolio and for different stress scenarios. The portfolio consists of OTC derivatives, and particularly Interest Rate and Foreign Exchange Swaps, which make up the majority of derivatives market. |
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