Consider the following trade 100 mil notional 7 year


Consider the following trade: $100 Mil notional , 7 year interest rate swap in Vasiceck’s model with mean reversion 10%, interest rates volatility 100bps, struck at par 3%. Assume the interest rate curve is flat at 3%.

a) Compute the expected positive exposure and the 90% percentile of the positive exposure (PFE (90%). hint : you can use class s/s that already compute these quantities.

b) Assume that the counterparty CDS trades at 500 bps with 0% recovery. What is the CVA adjustment of the swap?

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Financial Management: Consider the following trade 100 mil notional 7 year
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