Knowledge

Credit value adjustment (CVA)

The risk of loss caused by changes in the credit spread of a counterparty due to changes in its credit quality (also referred to as the market value of counterparty credit risk). Under Basel II, the risk of counterparty default and credit migration risk were addressed but mark-to-market losses due to credit valuation adjustments were not. Basel III introduced a CVA capital charge in addition to the default risk capital requirements for counterparty credit risk.