Consider the following trade: $100 Mil notional , 7 year interest rate swap in Vasiceck’s model with mean reversion 10%, interest rates volatility 100bps, struck at par 3%. Assume the interest rate curve is flat at 3%.
a) Compute the expected positive exposure and the 90% percentile of the positive exposure (PFE (90%). hint : you can use class s/s that already compute these quantities.
b) Assume that the counterparty CDS trades at 500 bps with 0% recovery. What is the CVA adjustment of the swap?