With respect to the CVA calculation, which ofthe following statements is correct when a risk manager wishes to understand which trades have the greatest impact on a counterparty's CVA? The manager would use:
A. Incremental CVA because it accounts for the change in CVA once the new trade is priced, accounting for netting.
B. Marginal CVA because he could break down netted trades into trade level contributions.
C. Incremental CVA because he could break down net1ed trades into trade level contributions.
D. Marginal CVA because it accounts for the change in CVA once the new trade is priced, accounting for netting.
Answer:B
Understanding which trades have the greatest impact on a counterparty's credit value adjustment requires use of the marginal CVA. Incremental CVA, by contrast, is useful for pricing a new trade with respect to an existing one.