5. (CVA for interest rate portfolio) Consider the CVA case study for a portfolio of interest swaps in the text. The case study is based on a Matlab example. Update the example by collecting data on (i) a portfolio of IRSs between a bank B and five counterparties (making sure that the floating and fixed leg rates are chosen so that current swap values are close to zero), (ii) a recent yield curve data, and (iii) CDS data for the counterparties. Back out the implied probabilities of default from the CDS spreads by applying a reduced-form hazard function model. Now redo Steps 1
4 in the case study and plot

a. the evolution of the yield curve for a given scenario

b. the mark-to-market value of the swap portfolio for one simulation

c. the mark-to-market value of the portfolio for all simulations

d. the exposure of the portfolio for all simulations

e. the expected exposure

f. the discounted expected exposure for each counterparty.

Finally calculate the CVA for each counterparty from bank B’s perspective.