Groundlearn / Glossary / Credit valuation adjustment
Credit valuation adjustment (CVA)
Also called CVA. A FRM term, defined in plain English with the distinction examiners test.
What it means
The reduction in a derivative’s value to reflect the possibility that the counterparty defaults.
The exam angle
DVA is the mirror image for your own default risk, and has the uncomfortable property that your deteriorating credit produces a profit.
Where it appears in the syllabus
- Credit Risk Measurement & ManagementFRM Part II · exam weight 20% · Merton and reduced-form models, credit VaR, counterparty risk, CVA, CDOs.
Related terms
- Adverse selectionThe problem that arises when the party with better information self-selects into a transaction, leaving the…
- CollateralAssets pledged to secure an exposure, reducing loss if the counterparty defaults.
- Counterparty credit riskThe risk that the other side of a derivative defaults before settling, when the contract has positive value to you.
- Credit default swapA contract in which the buyer pays a periodic premium and receives compensation if a specified borrower suffers a…
- Credit spreadThe extra yield a borrower pays over a risk-free benchmark of the same maturity, compensating for default and…
- Expected lossThe average credit loss anticipated over a horizon.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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