《Pricing Counterparty Risk at the Trade Level and CVA Allocations》.pdf

Finance and Economics Discussion Series Divisions of Research Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C. Pricing Counterparty Risk at the Trade Level and CVA Allocations Michael Pykhtin and Dan Rosen 2010-10 NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers. 1 Pricing Counterparty Risk at the Trade Level and CVA Allocations 2 3 Michael Pykhtin and Dan Rosen November 2009 Abstract We address the problem of allocating the counterparty-level credit valuation adjustment (CVA) to the individual trades composing the portfolio. We show that this problem can be reduced to calculating contributions of the trades to the counter