Question

What does CVA stand for? What are the two general types of CVAs?

1) Credit Value Adjustment; Counterparty Value Adjustment
2) Credit Value Adjustment; Collateralized Value Adjustment
3) Credit Value Adjustment; Credit Value Analysis
4) Credit Value Adjustment; Collateralized Value Analysis

Answer 1

CVA stands for Credit Value Adjustment, which is an adjustment to the market value of derivative contracts due to counterparty credit risk. The two general types mentioned are Credit Value Adjustment; Counterparty Value Adjustment and Credit Value Adjustment; Collateralized Value Adjustment. The correct pair in the context of the question is Credit Value Adjustment and Counterparty Value Adjustment.

Step-by-step explanation:

CVA stands for Credit Value Adjustment. It is a financial term used to measure the change in market value of a portfolio of trades due to the possibility that a counterparty may default on its obligations. There are two general types of CVAs that are commonly referred to:

1. Credit Value Adjustment; Counterparty Value Adjustment
2. Credit Value Adjustment; Collateralized Value Adjustment

However, within the context provided by the student, the correct pair is Credit Value Adjustment and Counterparty Value Adjustment. Collateralized Value Adjustment is not a commonly used term in conjunction with CVA.