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 TRM, Calculating CVA/DVA for Single Transactions (EE Method)

 

For the calculation of CVA and DVA for single transactions, you can also use the calculation method Based on Expected Exposures. With this method, the system calculates the risk-free NPV on the basis of the risk-free yield curve that is assigned in the relevant evaluation type.

The system calculates the CVA/DVA separately. First of all, the expected exposures for a set of future dates are either calculated or, in the case of manual entries, read from the EE table and weighted with the product of default probability (AWKT) and loss given default (LGD).

Technical Details

Technical Name of the Product Feature

TRM_CVA_ST_EE

The product feature is

New

Country Dependency

Valid for all countries

Software Component Version

EA-FINSERV 617

Application Component

FIN-FSCM-TRM-MR

Available as of

Example: SAP enhancement package 7 (SP07) for SAP ERP 6.0

Prerequisite Business Functions

TRM, Credit and Debit Value Adjustments (FIN_TRM_CVA)

Additional Details

CVA and DVA values are calculated using the following equations:

where

  • LGD = loss given default

  • D = discount factor

  • t = time

  • EPE = expected positive exposure

  • ENE= expected negative exposure

  • AWKT = default probability

  • C in subscript = business partner

  • I in subscript = your own company

  • EPE and CVA are positive

  • ENE and DVA are negative

The calculation of credit and debit value adjustments requires the credit spread curve for the reference entity of either the business partner or of your own company in order to obtain the product AWKT*LGD as follows:

LGD*AWKT (ti-1, ti) = CS (ti)*(ti - t0) - CS (ti-1)*(ti-1 - t0)

See also: Deriving Credit Spread Curves

The NPV is calculated as follows:

Risk-free NPV - CVA - DVA = NPV

Effects on Existing Data

You calculate NPVs with inclusion of CVA and DVA by using the function Determine NPVs Including CVA and DVA (transaction TPM60CVA). The system performs the calculation for the single transactions in the currency that you specify in the function. If you do not specify a currency for the calculation, the system applies the position currency.

The results at the level of the financial transactions are stored in the NPV table (table VTVBAR, transaction JBNPV).

Effects on Customizing

See also: Credit and Debit Value Adjustments: Customizing