Credit Valuation Adjustment (CVA)

Dear experts,

I have included the Article (section or regulatory requirements) for calculating the CVA. This formula is provided by Basel and has been adopted by the EBA.

I need help in trying to understand the mathematical operation for arriving at the CVA.

While I am aware that that my question is vague. I will appreciate if anyone can start at a high level in providing the following information:
1. What does the formulae achieve by calculating the square root of a portion of the value which is a square of sum of the individual values (A) and the other section being the sum of the squares of the individual values (B).

Thank you
CVA-question.docx
ExcellearnerAsked:
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Thibault St john Cholmondeley-ffeatherstonehaugh the 2ndCommented:
Using a root of the sum of the squares gives a mean value which may not be possible by simply adding and dividing if any of the values are negative.
Root mean square (RMS) is often used in electrical calculations with ac voltages etc as ac spends about half it's time being negative. Simply summing all the values, positive and negative would tend toward zero and not give a meaningful result. If the squares of the values are used they are all positive.
I don't know how this relates to financial calculations, but it may be for a similar reason.
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ExcellearnerAuthor Commented:
Thibault,

Thank you for providing your thoughts. It is certainly a good starting point.

Thank you,
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