CVA Sensitivities, Hedging and Risk

Stéphane Crépey, Botao Li, Hoang-Dung Nguyen, Bouazza Saadeddine

Abstract: We present a unified framework for computing CVA sensitivities, hedging the CVA, and assessing CVA risk, using probabilistic machine learning meant as refined regression tools on simulated data, validatable by low-cost companion Monte Carlo procedures. Various notions of sensitivities are introduced and benchmarked numerically. We identify the sensitivities representing the best practical trade-offs in downstream tasks including CVA hedging and risk assessment.