Portfolio Insurance, Cascade Theory Flashcards
1
Q
What is the purpose of Credit Valuation Adjustment
A
- Reflects the potential loss to a bank due to a counterparty’s default.
- Represents the present value of expected losses from potential defaults.
2
Q
What is the purpose of Debit Valuation Adjustment
A
- Accounts for potential gains from the bank’s own default.
- Reflects situations where the bank might not need to fulfil negative-value
obligations
3
Q
How do Accounting for Financial Instruments and Banking Basel Regulations for Financial Institutions differ in their regulations
A
Accounting for Financial Instruments - Credit Impairment requires all
companies to take both CVA and DVA into consideration.
Banking Basel Regulations for Financial Institutions requires
adjustments due to CVA
3
Q
A
3
Q
No collateral means
A
no assets to offset losses in the event of default
3
Q
‘Protective Put’ using index put option is called
A
A static hedge
4
Q
The Dow Jones Industrial Average fell by
A
over 20% on October 19, 1987
5
Q
A
