In this paper, we propose a neural network-based method for CVA computations of a portfolio of derivatives. In particular, we focus on portfolios consisting of a combination of derivatives, with and without true optionality, e.g., a portfolio of a mix of European- and Bermudan-type derivatives. CVA is computed, with and without netting, for different levels of WWR and for different levels of credit quality of the counterparty. We show that the CVA is overestimated with up to 25% by using the standard procedure of not adjusting the exercise strategy for the default-risk of the counterparty. For the Expected Shortfall of the CVA dynamics, the overestimation was found to be more than 100% in some non-extreme cases.

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Applied Mathematics and Computation
Centrum Wiskunde & Informatica, Amsterdam (CWI), The Netherlands

Andersson, K.H, & Oosterlee, C.W. (2021). Deep learning for CVA computations of large portfolios of financial derivatives. Applied Mathematics and Computation, 409. doi:10.1016/j.amc.2021.126399