Credit value adjustment[size=13.63636302947998px] (CVA) is the difference between the risk-free portfolio value and the true [size=13.63636302947998px]portfolio value[size=13.63636302947998px] that takes into account the possibility of a [size=13.63636302947998px]counterparty[size=13.63636302947998px]’s default. In other words, CVA is the [size=13.63636302947998px]market value[size=13.63636302947998px] of counterparty [size=13.63636302947998px]credit risk[size=13.63636302947998px].
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[size=13.63636302947998px]More generally CVA can refer to a few different concepts:

• A part of the regulatory Capital and RWA (Risk weighted asset) calculation introduced under Basel 3;
• The CVA desk of an investment bank, whose purpose is to:
  • hedge for possible losses due to counterparty default;
  • hedge to reduce the amount of capital required under the CVA calculation of Basel 3;
    
• The "CVA charge". The hedging of the CVA desk has a cost associated to it, i.e. the bank has to buy the hedging instrument. This cost is then allocated to each business line of an investment bank (usually as a contra revenue). This allocated cost is called the "CVA Charge".
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[size=13.63636302947998px]In the view of leading [size=13.63636302947998px]investment banks[size=13.63636302947998px], CVA is essentially an activity carried out by both finance and a trading desk in the Front Office. Tier 1 banks either already generate counterparty EPE and ENE (expected positive/negative exposure) under the ownership of the CVA desk (although this often has another name) or plan to do so. Whilst a CVA platform is based on an exposure measurement platform, the solution drivers are very different and it is unwise to create dependencies between the risk exposure management system and front office CVA system, even if they share similar intermediate outputs.