Monthly Archives: November 2009

Historical or implied?

To calculate counterparty exposure, we need to calibrate our scenario generator to historical data. However, for CVA calculations, we need scenarios based on implied volatilities of the underlying risk factors. Continue reading

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Don't trust a model

Financial models are never precise, but it does not make them useless. Continue reading

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Exposures are not additive: case in point

Potential exposure is not additive: the total exposure on two trades can be very different than the sum of potential exposures on each trade. Continue reading

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