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Hi @ami44 , Since I am reading this topic for the first time, things are still too cloudy. Apart from the incremental var being dependent on the sequence of trade, what does marginal cva on the other hand precisely do! Isnt both of the values dependedent on the extra amount of exposure added by...

Thank you, so it is kind of sensitivity analysis rather than the actual mechanism which i was confused about.

Im sorry, my question was why wouldn't the market price adjust to increase in recovery rates. I mean this line of your 'If you increase your assumed recovery rate and re-calculate the curve'.

Hi @David Harper CFA FRM , If marginal CVA is additive, why does thetital of the last coloumn of marginal cva doesnt add up to the total of standalone cva?

@Matthew Graves but why does the market price reflect the change in recovery rate?(i am just confused)

Thank you very much, makes sense.

Yes, that is true but then why is the text showing cva increase in case of a downward sloping curve? The cva formula is LGD*EE*PD and if the credit profile is expected to improve, then shouldnt the cva be lower incasse of a downward sloping credit curve?

I was reading Gregory and there he mentions that 'in upward sloping curve, defaults are back loaded and in case of downward sloping curve, defaults are front loaded. What does this mean?

CDS spread being less valuable reduces the spread. I thought there is a difference between a value of a CDS and a price of a CDS? I was under the impression that price of a cds when low, the cds spread is low and vice versa. I thought value to be same as we treat the bonds?

I know, when i was reading that section for the first time, i scratched my head over and over again for the funding cost section until i realized that I am not alone :P

In the event of delivery squeeze, The value of the CDS declines. This is because the price of the underlying bond increases and hence payoff from settlement is lower. So how does this delivery squeeze induce negative CDS-Bond basis? The bond spread should be now lower/cds spread should be higher...

Thanks @QuantMan2318 was getting it but still it was cloudy. Your explanation cleared it!

How can funding liquidity risk be converted from counter party risk? I can't get it in Gregory Chapter 5. Also, can anyone clear me on this' the institution will incur a funding cost when uncollateralized trade moves in their favor and experience a benefit when reverse happens'.

Hi David, the formula you have written, Σu(i)^2/(n-1) - [Σu(i)]^2/[n*(n-1)], where u(i) is the daily log return , shouldnt it be Σu(i)]^2/[n^2*(n-1) (the second term?) since it is the mean u/n which is squared?

Aha, I see it now, actually i didn't go through the very last part of the chapter where the relationship between jump and implied volatility was shown. Thanks a lot,. But does a jump always makes a frown? I am confused about that PS: I am no maths guy :P

Moreover, this equation dc/dS+(dc/d imp.vol)*(d imp.vol/dS) given by Hull, dont you think there will be an '=' sign rather than '+' sign? I believe he is trying to break the delta of the option into two pieces just to show the positive relationship between implied volatility and stock price...

Hi @QuantMan2318 thanks for the reply, Why are you saying 'The impact of the jumps, as we may observe, the jumps cause the opposite effect of a smile'?? Hull says that 'The percentage impact of jumps on both prices and the implied volatility becomes less pronounced as the maturity of the...

percentage impact of non constant volatility on option prices are more pronounced as time to maturity increases-This is what Hull's text says. Can anyone explain me why impact on prices become more pronounced even though the volatility smile itself becomes less pronounced when the maturity term...

Hi, nice thread. The repercussions are different for different players, here I take position as a US resident For a US manufacturer, a currency hedge will backfire. The pound is down to its lowest levels in 30 years and the firm is going to rue lost margins. Moreover, engaging in a future...

Hi there, Covered call strategy means you have written a call (short call) and then purchased a stock to hedge against your short call position. What the hull text says is that we an create a covered call through algebraic manipulation of the put call parity. Here is how: the PCP equation is...