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Tag Archives: EAD
The dreadful 40-60 rule
When we have to calculate exposure at default (EAD) on a particular trade, we seldom have to compute it analytically (e.g. as shown here). More often we just take the current MtM of the trade and add the so-called add-on. … Continue reading
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
Posted in Finance
Tagged counterparty exposure, credit value adjustment, CVA, EAD, historical volatility, implied volatility
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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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