University of Twente Student Theses
Credit Valuation Adjustment: An Empirical Application to Interest Rate Swaps
Ambergen, T.J. (2024) Credit Valuation Adjustment: An Empirical Application to Interest Rate Swaps.
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| Abstract: | This thesis explores the development and implementation of a Credit Valuation Adjustment (CVA) model specifically for interest rate swaps (IRS), in response to challenges faced in the financial risk management (FRM) department of Deloitte Netherlands. The work addresses the limitations of using Bloomberg for CVA valuation, such as its inability to handle certain derivative types and lack of transparency in the valuation process. A literature review on the methodologies for CVA calculation is conducted, comparing equilibrium and no-arbitrage interest rate models, including the Vasicek, Hull-White, and Cox-Ingersoll-Ross models. Based on this comparison a CVA model is developed using the Hull-White one-factor model for simulating interest rates. The CVA model developed in this thesis provides a viable alternative to Bloomberg’s valuation methodology for interest rate swaps, as the results were consistent with those produced by Bloomberg. |
| Item Type: | Essay (Master) |
| Clients: | Deloitte, Amsterdam, The Netherlands |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 31 mathematics, 83 economics |
| Programme: | Industrial Engineering and Management MSc (60029) |
| Link to this item: | https://purl.utwente.nl/essays/104046 |
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