Bilateral credit valuation adjustment for large credit derivatives portfolios (Q468421)

The authors obtain an explicit formula for the bilateral counterparty valuation adjustment of a credit default swaps portfolio referencing an asymptotically large number of entities. The key innovation in their approach is a fully explicit characterization of the asymptotic portfolio exposure which allows them to obtain an explicit representation of the bilateral credit valuation adjustment. They employ the heavy weak convergence machinery for martingale problems related to measure-valued processes driven by jump-diffusion type processes.