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Credit valuation adjustment

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Published: 25th March 2017 by William Webster

Derivatives are traditionally valued by taking the expected future cash flows and then discounting them in accordance with interest rates to give today’s value (present value).
Implicit is the assumption that the derivative contract will run to its contractual date and all the cash flows will be paid and received. However, in the real world this may not occur. The counterparty may default.

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