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Topic Title: CVA Desk PNL? Profit?
Created On Tue Jan 19, 10 01:11 PM

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June369
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Tue Jan 19, 10 01:11 PM

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I am a fresh graduate who will be joining a CVA Trading desk at a bulge bracket after graduation. I have read through several forum on Wilmott and feel that there are a few people like me, with limited experience on the desk, am uncertain about the way the desk generates profit. Some people talked about the zero PnL and "condemn" it to support-oriented middle office function, while others view it as a profit-generating growing area within trading and risk management for the bank. So could someone experienced in the field kindly explain the PnL mandate of the desk and how it generates profit/what CVA traders base their bonus on? Thank you very much in advance.

daveangel
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Tue Jan 19, 10 04:08 PM

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what is CVA trading ?

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Traden4Alpha
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Tue Jan 19, 10 04:13 PM

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CVA = credit value adjustment : The point is to hedge for counterparty risks

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"It often happens that a player carries out a deep and complicated calculation, but fails to spot something elementary right at the first move." -- grandmaster Alexander Kotov --inscribed on gift chess sets given by Amaranth hedge fund.

Edited: Tue Jan 19, 10 at 04:16 PM by Traden4Alpha

daveangel
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Tue Jan 19, 10 04:18 PM

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ah - sorry. I don't know if this is a p+l centre or not.. sounds more like not but could be wrong

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Traden4Alpha
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Tue Jan 19, 10 04:31 PM

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I get the sense that CVA was primary risk management but that some desks gain some profit on their trades.

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"It often happens that a player carries out a deep and complicated calculation, but fails to spot something elementary right at the first move." -- grandmaster Alexander Kotov --inscribed on gift chess sets given by Amaranth hedge fund.

HTFB
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Tue Feb 02, 10 01:35 AM

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HTFB
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Tue Feb 02, 10 01:40 AM

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here's how you make profits on a CVA desk.

1) you get paid by an internal desk to cover their c/p risk. you stay long and the credit tightens... you make money (similar to #2 below)
2) Prop trading in a credit you may or may not have a risk in
3) you way overcharge a moronic internal desk that doesn't have bloomberg or know wtf a CDS is AKA arbing your own firm
4) crossing dealers on illiquid credits AKA being a spiv
hope this helps

JWYWXQ
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Wed Feb 24, 10 10:22 PM

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It varies--- I knew in some firms it has its own PnL while also heard in some other banks it's merely a risk-mgmt role

daveangel
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Quote
it's merely a risk-mgmt role

merely

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June369
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Wed Aug 18, 10 11:25 PM

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Cool thanks! Things get a bit clearer now... I think every big investment bank places it in the front line for a reason.... If it is just merely just risk management per se, then it would be a middle office function and trading will not take place frequently, although how much risk that each is allowed to take will vary with the mandate of the bank....

BouhLolou
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Thu Aug 19, 10 08:15 AM

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Hi all,

Just saw an offer for a "risk portfolio trader", is it the same type of job you are talking about ?

Gmike2000
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Thu Aug 19, 10 10:20 PM

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i have not seen a cva desk in person, but from what is being said in the market they seem to be dumb money, a.k.a. forced hedgers. this does not mean it is a dumb function, no it really is a new and important activity for banks to manage their risks.

but the way it is currently done is rather stupid...they buy/sell at the worst times without regard for value. they seem to act like quants who run exotics books without understanding the market.....

water
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Sat Aug 28, 10 09:59 PM

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Quote
Originally posted by: June369
I am a fresh graduate who will be joining a CVA Trading desk at a bulge bracket after graduation. I have read through several forum on Wilmott and feel that there are a few people like me, with limited experience on the desk, am uncertain about the way the desk generates profit. Some people talked about the zero PnL and "condemn" it to support-oriented middle office function, while others view it as a profit-generating growing area within trading and risk management for the bank. So could someone experienced in the field kindly explain the PnL mandate of the desk and how it generates profit/what CVA traders base their bonus on? Thank you very much in advance.

CVA desk is quite important function of the banks. By aggregating credit exposures globally and centralize the hedging activity, they allow the other trading desks to focus on what they are good at without worrying about the credit issue. They make decisions (lots of them) on the CVA hedging strategies, managing illiquidity and correlations. Their goal is not to make profit from other trading desks, but a utility function or service. Lots of things.

Have fun.

June369
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Sat Aug 28, 10 10:44 PM

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Quote
Originally posted by: Gmike2000
i have not seen a cva desk in person, but from what is being said in the market they seem to be dumb money, a.k.a. forced hedgers. this does not mean it is a dumb function, no it really is a new and important activity for banks to manage their risks.

but the way it is currently done is rather stupid...they buy/sell at the worst times without regard for value. they seem to act like quants who run exotics books without understanding the market.....

Hmm I think banks probably don't have enough experience to manage or handle this desk at the moment... based on the feedback i have from friends in another CVA desk, some ppl in his desk are actually making some good money from their hedging book, while others are doing just fine, i.e. having a flat PNL... Hopefully our mandate will be a bit more meritocratic and good hedgers can get rewarded....

My other concern is how about the exit route from this desk? In theory it should give you good understanding of all OTC products, but does that mean you would be ready to join any flow desk coming out of here? I am not sure how does a starting point of flow desk compare to that of CVA, but by the sound of it, a normal flow desk would give you a limited scope of products and the work is really repetitive... what's others' view?

"risk portfolio traders"... it could be many other things too... it is too hard to say just by the name... a friend of mine works in this "risk management" unit of my banks, and he does some PVA stuff... no idea what its about...

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