Question
If the market considers that the default probability for a bank has increased, what happens to its DVA? What happens to the income it reports?
Step 1
DVA is an adjustment to the fair value of a bank's liabilities to account for the bank's own credit risk. It reflects the potential gain a bank could realize if its own creditworthiness deteriorates, as it would be able to settle its liabilities at a lower cost. Show more…
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