timchimpski
New Member
There is a vingette in the original GARP readings (Pricing Counterparty Credit Risk I) that speaks to an evolution of the CVA market in the wake of the finanical crisis, where most banks were downgraded and their credit spreads gapped out. The text eludes to the possibility of a counterparty pushing back against the bank in a situation where their credit ratings and spreads converge (which was the case in the exam question). I went with the answer that the institution demands a reduction in CVA.