The Standardised Approach for Credit Valuation Adjustment (SA-CVA) is a regulatory methodology for calculating the capital charge associated with CVA risk, which accounts for potential losses due to a counterparty’s default on over-the-counter (OTC) derivatives. In the context of crypto institutional options trading or RFQ derivatives, SA-CVA provides a prescribed framework for financial institutions to quantify and provision capital against counterparty credit risk for digital asset exposures.
Mechanism
This mechanism assigns specific CVA risk weights based on factors like counterparty type, collateralization levels, and derivative netting agreements, rather than relying on complex internal models. The calculation typically involves multiplying the exposure at default by a supervisory CVA risk weight and a correlation factor, leading to a standardized capital requirement.
Methodology
The strategic objective of SA-CVA is to simplify the capital calculation for CVA risk and ensure a consistent, conservative capital floor across financial institutions, including those engaged in crypto derivatives. This methodology aims to enhance financial stability by mandating adequate capital reserves against potential counterparty defaults in digital asset markets, particularly where internal models may not be fully developed or recognized by regulators.
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