I'm confused regarding the inclusion of the CVA hedges in the CVA VaR capital charge calc. Based on the following statement in the accord : "102. Only hedges used for the purpose of mitigating CVA risk, and managed assuch, are eligible to be included in the VaR model used to calculate the above CVA..."My preliminary understanding is :Inelligible instrument :CVA is based on effective exposureAssuming we have a CDS on a particular counterparty hedging default risk of particular instrument.CDS will transfer risk of default to different counterpartryThis CDS will not be included in CVA calc as a hedge, but will in a sense, as it nullifies exposure on one of the counterparties (so, included in the EE calc, but not in the CVA VaR calc)CDS would also have it's own CVA VaR calc against it for it's issuer.Elligible instrument :There is a CDS entered into specifically for the hedging of derivatives CVA (not credit risk)CDS is not included in exposure calc, derivative gives full exposure.Part of this derivatives value is the CVA calc.This is offset by mark to market value of hedging CDS.CVA VaR is calced marking to market CVA and hedging CDS value across all VaR scenarios.Hedging CDS introduces new CVA against CDS issuer.Is the above about right? I have a 2nd query regarding whether effective exposure would be recalced under each VaR scenario, but I'd assume the exposure scenario range would be broad enough to make recalcing under each VaR scenario pointless?