The counterparty risk is known to have an important impact on a portfolio. LexiFi Apropos evaluates this risk and its components precisely and rapidly so that one can concentrate on results and immediately benefit from a complete and intuitive view of them.
This feature is helpful to effortlessly fulfill regulatory requirements or to sense the portfolio exposure.
Compute pricing to compare:
- Portfolio risk free price: no default risk
- Internal portfolio risky price: internal default risk
- Counterparty’s portfolio risky price: counterparty’s default risk
- Portfolio risky price: both parties' default risk
The Credit Valuation Adjustment (CVA) and the Debt Valuation Adjustment (DVA) are computed with a strategy based on two strong major points:
- An algebra analysis: solve American features and create sub-contract for each computation date
- A pricing engine: use a Monte-Carlo method and a numerical integration
LexiFi Apropos includes graphical charts to facilitate the understanding of the results. Both the positive and the negative expected exposures are visually represented, as well as the internal default probability and the counterparty default probability. The video below demonstrates the tool showing its different elements and results.
Video: The interface shows that users can keep the default pricing profile or choose a pricing model to price the XVA of a specific contract. The interface has different elements, among which we find: Market data source to specify the market data used to compute the prices and the default/survival probability of the counterparty and that of the company itself. Credit Information to define both entities (the company itself and the counterparty). Is collateralized with a box to check if the contract is collateralized. If the contract is collateralized, we have to specify a Minimum Transfer Amount. The Result section gives the decomposition of the price with the unilateral CVA and DVA and the bilateral CVA. In the Chart section, we show the Positive and Negative expected exposure. We also plot the internal and counterparty default/survival probability.
Figure 1: Chart of positive expected exposure at a per-product level