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What is risk the association referring

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A trader needs to estimate the CVA on a swap. The exposure management group comes up with EPE of $6 million. With the collateral, the recovery rate of the firm is 60%. The discount factor is 0.9. The probability of default (PD) of the counterparty is 2%. The management group funds that the collateral's PD is positively associated with the PD of the counterparty. EE considering this association is $7 million. What is risk the association referring to and what is the CVA considering this risk?

Reference no: EM133062421

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