Credit Valuation Adjustment - the challenges of implementation

There are many texts on the theory of Credit Valuation Adjustment (CVA) but CVA is about much more than theory. The motivation for setting up an infrastructure to manage CVA varies considerably across institutions. The implementation of a CVA function can be highly political as it cuts across product lines and blurs the boundaries between risk management and the front office. There are also considerable systems, methodological and trading challenges. In this paper co-authored with SunGard, we examine some of the different motivations that have lead institutions to set up a CVA function and the practical issues they have faced.