• In the formula for $K_b$, $R$ is a hedging disallowance parameter, set at [0.01], that prevents the possibility of perfect hedging of CVA risk, and

  $$W{S}_k=W{S}_k^{CVA}+W{S}_k^{Hdg}$$

  $$W{S}_k^{CVA}=R{W}_k\cdot s_k^{CVA}$$

  $$W{S}_k^{Hdg}=R{W}_k\cdot s_k^{Hdg}$$

  • $R{W}_k$ – risk weights applicable to each risk type specified in the table below.
  • $s_k^{CVA}$ – sensitivity of the aggregate CVA to each risk factor k in the risk type. The sensitivities are defined as the ratio of change of the quantity in question caused by a small change of the risk factor current value to the change size.
  • $s_k^{Hdg}$ – sensitivity of all eligible hedges to each risk factor k in the risk type.
  • ${\rho }_{kl}$ – correlation parameters applicable to each risk type.

Excel

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