Credit Valuation Adjustment

Credit Valuation Adjustment (CVA) is a financial term that measures the risk of loss a company could face if a counterpart—in a financial transaction or contract—fails to meet their obligations, such as defaulting on a loan. Essentially, it reflects the potential loss due to the credit risk of the other party. CVA helps financial institutions determine how much extra they need to charge for the risk of this potential default, ensuring they can cover potential losses in their dealings with clients or partners. It’s a key concept in risk management and pricing of financial derivatives.