easy · FRM Part 2 Credit Risk
The Basel III CVA capital charge was primarily introduced to address:
- The operational risk of system failures occurring at central counterparties.
- The credit risk of actual defaults occurring among sovereign bond issuers.
- The model risk of incorrect loss-given-default estimates within the Merton structural model.
- The risk of mark-to-market losses due to deteriorating counterparty credit spreads.
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