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CVA Calculation for CDS on Super Senior ABS CDO

by Hui Li of AIG

August 2008

Abstract: The way monoline insurers estimate the FAS 157 credit value adjustments (CVA) on their ABS CDO insurance portfolios vastly overstates the benefits. We propose a simple method that is more accurate, especially when the counterparty default risk is high. The counterparty default recovery rate is also a critical input.

JEL Classification: G32.

Keywords: Credit Value Adjustment, Super Senior ABS CDO, Monoline insurer.

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