CVA Trading: insights, typical day in the life, pricing models?
Tried doing a search on this but i guess there isn;'t that many users in CVA
If thats changed or you have some insight lemme know
I'm curious what a typical day in the life of a CVA associates like>?
How quant heavy are we talking/how complex are the pricing models?
Models not too complex, but obviously a little more funky than vanilla rates. Basically, a bit like rates exotics, I'd say. My Z$2c...
Whats a typical day like for an associate in the CVA world / if im not a quant jockey do i have a chance to break into a CVA desk"?
What would be the best book or series of books to pick up if one wanted to learn about some CVA pricing models?
I dunno what the day of a CVA jock is exactly like, but I imagine it's a cycle of "examine portfolio", "hedge as necessary" sorta thing.
No, you don't have to be a Ph D in nuclear microastrobiology to work on a CVA desk.
As to books, I am actually not sure. Apart from more general derivatives books, CVA is a little too esoteric for books. If you want some papers, I might have a few. If you wanna read 'em, drop me a PM w/your email address.
Book-wise, a great place to start is "Counterparty Credit Risk and Credit Value Adjustment" by Jon Gregory. If you understand the contents, you are well on your way.
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.
A very thorough and helpful explanation, this...
All I'd add is that I wouldn't actually knock CVA in terms of buyside career prospects. As a specific example, my desk has hired a junior from one of the big CVA desks and he's been a fantastic addition to the team.
Just out of curiosity, what kind of fund is it? Is it quant-heavy? I could definitely see that being a good fit. I think you're right - I was probably a bit strong in saying that "CVA won't help you move to a HF period, though I would think that to some extent, outside of funds that are very quant-heavy (rather than fundamental) there are Associates with other backgrounds (such as IB) who could be stronger candidates for a HF though you're better-positioned to address that than I am. Would it just depend on the focus of the fund?
To elaborate a bit on what I was getting at, as an Associate, at least where I am, they are not heavily involved in the high-level, macro-based "book management", and therefore don't have much opportunity to develop a sense of the market in general (macro, main themes, upside/downside catalysts, being on top of the headlines, etc.). The other thing I'd add is, on a CVA desk, an Associate is doing derivative modeling, not traditional three-statement fundamental valuation models, which I'd think could be more relevant for a HF. So while someone capable of doing derivatives modeling is likely also capable of doing BS/IS/CF-based models, I'd think that an Associate with a different background (who already knows the fundamental models) might be a more likely hire than a CVA Associate at a HF.
CVA Trading Interview (Originally Posted: 12/27/2012)
I'm having an interview for CVA trading FT position at a BB (think GS, MS, CS, etc.) in the next couple of weeks. Does anyone here have CVA trading interview before/ know about CVA trading in general? Please give me some advice on what I should read/do to prepare for the interview. Network my ass off to get it, so I definitely don't want to mess it up. It's final round btw.
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Anyone else? And btw @theworks9: if you don't have anything good to say, don't go around posting random sh*t in people's posts just to earn banana points, a******!
bump
Hi ntth_ib
I'm also having an interview with CVA trading desk (but not in NY or LDN). Do you mind sharing what questions you've been asked? Or at least what asset classes you should know best for CVA Trading?
Thank you very much
CVA is a massive can of worms - especially DVA. It is a good idea to get up to speed on monte carlo, CSA, and interest rate spreads. Hull has a pretty good deck to start out with: 1.pdf" rel="nofollow">http://www.prmia.org/Chapter_Pages/Toronto/John%20Hull%20PRMIAToronto20… And FT Alphaville is another good (i.e. legible) source: http://ftalphaville.ft.com/2012/10/29/1235261/overly-processed-accounti…
CVA Trading Desk (Originally Posted: 04/12/2011)
How is an associate position on a CVA desk. How is $$?
What are the possible exits 3-5 years down the road?
Any other insight would be appreciated.
Thank you
Anyone with any insights???
CVA desks are an interesting area. Obviously one of the best parts about the desk is the cross asset valuation work you will be doing. You are going to be looking at risks across all products and assets held by the floor/bank (depending on the mandate). However, as the desk is focused on hedging its tough to come up with a true p/l figure. I know some banks have it set up so that the desk can "earn" a p/l via risk charges on other desks plus beating a benchmark. Even then its pretty up in the there as your "p/l" can change based on management definition.
Exit opps are tough to speculate about as, again, there is no real p/l. I am sure people move onto other areas so you might need to do a little searching.
The comments provide some insight: http://news.efinancialcareers.co.uk/News_ITEM/newsItemId-28777
Thank you guys for the reply. I am taking the plunge. Any inofr on exit ops will be appreciated.
CVA Trading (Originally Posted: 12/08/2012)
I know CVA has become very much in the focus recently after Basel 3. I was wondering what type of exit opportunities such a role may provide from what some of you may have seen in the industry. I know the function of the desk is not something that would be found at a buy side fund. I also understand that it definitely helps to understand the technicalities of hedging your books. But are the skillsets still transferable to, say a hedgefund? Or is one better off making an internal transfer to one of the flow desks to reach the buy side?
I'd imagine exit opps would be skewed highly towards buy-side in credit derivatives, since this is a significant portion of the trading you would be doing at a CVA desk. You would also gain experience in trading some other markets (such as rates). If you're trading CDS and other credits I would imagine there would be opportunities in hedge funds. If you're doing rates I imagine there would be positions in the buy-side, but likely a different subset than hedge funds (what do I know though).
I would imagine you could also move into consulting, but don't know the lifecycle for these opportunities. As a wider set of banks are required to measure and trade CVA, consultants and technology providers I'm sure are licking their chops.
Lastly, IMO, CVA is unique in that it requires a more holistic view of risk taken on by a bank. I would imagine that those skills are transferable more broadly to risk management careers in general.
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