Credit Valuation Adjustment (CVA) quantifies the market value of counterparty credit risk in derivative portfolios. It represents the expected loss from counterparty default, calculated using probability of default, loss given default, and exposure at default over the contract lifetime. CVA is marked-to-market daily and affects profit and loss. Basel III requires banks to hold capital against CVA volatility. A bank calculated a $4.2 million CVA on its derivatives exposure to a corporate counterparty with deteriorating credit metrics, adjusting the contract value and hedging the credit risk through credit default swaps.