medium · FRM Part 2 Credit Risk
A bank calculates CVA for a derivative portfolio. If the counterparty's CDS spread widens significantly while the bank's own credit quality remains constant, what is the impact on CVA and DVA?
- Both CVA and DVA increase due to systemic risk correlation.
- Neither CVA nor DVA changes; they only react to changes in underlying asset prices.
- CVA increases; DVA is unchanged.
- CVA increases; DVA decreases (an accounting offset).
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