Independent thesis Advanced level (degree of Master (Two Years)), 20 credits / 30 HE credits
Before the global financial crisis around 2008, the priority of the credit margin
was comparatively low and was not taken into consideration as much as today.
Many actors believed that credit risk could be neglected at various valuations.
Due to that a lot of parties went bankrupt because of the low priorities. Today,
this is a natural component in the financial market due to the capital regulation
CRR and the Capital requirement directives (CRD IV), which are directly
related to Basel III. In this thesis the authors have created a Credit valuation
adjustment model, or a CVA-model, on behalf of the consulting firm AGL who
want to use it in negotiations of interest rate swap with financial institutions.
Factors as expected exposure, loss given default and probability of default are
estimated in order to estimate a fair value for CVA. As a final product, the authors
have created a model in VBA that can price CVA for individual contracts.
This model is then evaluated and a sensitivity analysis is performed to see what
impact credit rating and maturity have on the result.
2016. , 46 p.