CVA Trading: insights, typical day in the life, pricing models?

I just joined WSO after lurking for a while on other subjects. I know it's been several weeks since your OP but hopefully I can help you (and others) out on this topic, at least based on how things work at my particular firm. I am currently a CVA trader at a large bank. I have almost two years of experience on this particular desk (all as a VP). Just for information in terms of my overall background/experience, prior to joining the CVA desk, I worked as a prop credit trader at the same bank (first as an associate post-MBA, then as a VP, but at all times having my own positions/book as I had similar experience pre-MBA). My move was due to the general cutback on proprietary trading activity as a result of Dodd-Frank. This was a typical move at the time for prop desk personnel - a few years ago when the fate of bank prop desks became clear (i.e. that it was going to be regulated away), it was fairly common for banks to take people from prop and move them to CVA, where they could continue, with certain limitations, as a buyside trader and at least rut on macro strategies on top of the CVA book. That being said, with the DF rules just clarified, the tide has changed on that and I'd say that moving forward, the possibility of anything resembling true prop trading activity on a CVA desk has been regulated away.

Before going further, and I'm sure it varies from firm to firm to a certain extent, an important fact to note is that generally speaking, at this point, CVA desks are dealing with more than CVA. They are also managing DVA and FVA, as well as Basel III capital (CCR and CVA) for derivative positions (for an example, if you look at Deutsche Bank's recent financial reports, you'll see they disclosed some p&l impact from hedges aimed at mitigating capital on the firm's derivative positions).

In terms of model complexity, for vanilla products, the models aren't particularly complex. Basically they're looking at market observable forwards and vols to generate expected exposures. On top of that, the models will have been written by a Quant team, not by the traders themselves. In this sense, rather than creating new models, your responsibility is to thoroughly understand the Quant's models and be able to effectively apply them in pricing. And I'd agree with the other poster who likened a CVA book to rates exotics - there are definitely overlaps though CVA is ultimately more complex (a CVA book's risk on an uncollateralized rates exotic trade mirrors the exotic book's, plus a bunch more risks like credit-rates correlations).

In summary, at least where I work, I'd say a CVA associate is going to be focused day-to-day on pricing trades for Sales, monitoring that activity in terms of risk impacts on the existing book, and in some cases, executing the hedges. Think of it this way - for any derivative transaction, Sales will go to the flow desk for the risk-neutral market price (including bid-offer), and in conjunction with that, they will come to the CVA desk for the risk-adjusted pricing. CVA associates need to be on top of everything that's going on with the larger deals that will materially move the CVA book's risks.

CVA/FVA/DVA as well as Basel III are central issues to any derivatives business, so in that sense, you will be at the center of a lot of activity going on (mainly in Fixed Income, though you will see Equity Derivatives as well to the extent that an Equities client isn't fully collateralized, which is relatively rare). You will have a lot of interaction with Sales and serve as the first point of contact for them in understanding pricing. You will also likely cross paths with other groups in the firm that deal with things like trade/counterparty documentation, trading credit risk, and collateral management. You will also likely interact with your central funding and treasury groups on the FVA side of things.

You didn't specify why you're asking about this topic, but I'm assuming you're looking at an opportunity as a CVA trading associate so I'll add a few thoughts on that despite the fact that I'm responding several weeks after your OP. I'd say that all in all, in terms of a starting point, whether or not a CVA desk is a good spot for you might depend on where you want to end up in the longer term. If you don't have pure trading/markets experience, don't think that you are going to develop a lot of it on the CVA desk. The overall book will be managed by people with trading experience, likely some combination of prop and credit or rates exotics. That being said, a CVA job can lead to a position on a swaps desk (or rates exotics, FX options, etc.). You'll also have opportunities in derivatives marketing / structuring (the folks who cover IB clients for their derivative needs) and you'd have a leg up on all the junior staff there as you'll develop a deep knowledge, academically speaking, of derivatives pricing. And if you're interested at all in other areas of the bank, CVA experience is going to look good because it's a high profile issue. But if you want to go to a HF, this won't help you unless you're running the book, which doesn't happen at the Associate level.