medium · Frm Part 2 Credit Risk
A risk practitioner calculates the 'incremental CVA' of a new trade.
Under what condition can this incremental CVA be negative?
- When the new trade's value moves in the opposite direction of the existing netting set's value.
- When the bank's own credit spread widens (DVA increases).
- When the counterparty's credit spread tightens significantly after the trade is executed.
- When the standalone CVA of the trade is itself negative.
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