Hello,
I understand that the CVA is the sum of the present value of the expected loss in each period for a bond. However, it also says that the CVA =value of a risk free bond- value of a risky bond.
Can someone explain me why we say that CVA is the difference between the value of a risk free bond and value of a risky bond?
Thank you in advance
What makes a risky bond risky?
My simple understanding is that the CVA is a credit value adjustment, which means that a risky asset is risky due to the credit risk of its issuer (not only due to that of course but that`s what CVA says to us). And, it is adjustment because it adjusts the market price of the asset following the creditworthiness of the issuer. Correct me if I am not right?