Global Derivatives Conference 2013 (Amsterdam)
At Global Derivatives Conference, Alexander Sokol presented a paper on trade specific calibration for CVA/FVA. This presentation has been expanded to include new material compared to previous conference presentations on the same subject.
This is the title and brief summary of the presentation:
Three Methods for Incorporating Trade Specific Calibration into Path Consistent CVA/FVA Simulation (pdf)
- Monte Carlo simulation of portfolio exposure under risk neutral and real world measures must use the same paths for all trades within the netting set
- Using traditional methodology, trade specific calibration is incompatible with path consistency under the risk neutral measure and is prohibitively slow under the real measure
- The author presents several techniques for incorporating trade specific calibration into path consistent portfolio exposure simulation without the computational penalty
- These techniques can help improve model accuracy measured by backtesting and the agreement between current exposure and accounting MtM