hard · FRM Part 2 Credit Risk
A bank is calculating the Credit Valuation Adjustment (CVA) for a 2-year uncollateralized derivative. The expected exposure (EE) profile at the end of Year 1 is 20 m and at the end of Year 2 is 30 m. The counterparty's hazard rate is constant at λ = 4% and the loss given default is LGD = 45%. Assuming discrete annual buckets and no discounting for simplicity, calculate the CVA.
- $0.862 m
- $0.900 m
- $0.518 m
- $1.915 m
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