Published April 22, 2022
| Version v3
Working paper
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Collateral Posting Framework
Description
This paper presents a framework for calculating credit exposure under collateral posting. We empirically gauge the impact of collateral agreements on risk measurements. Our findings show that collateral posting can reduce credit risk and credit valuation adjustment (CVA). The results also suggest a negative correlation between collateralization and CVA as an increase in collateralization causes a decrease in CVA charge and vice-versa. These findings improve our understanding of the relationship between collateralization and CVA.