The funding invariance principle
Youssef Elouerkhaoui develops a new technique for solving the master pricing equation based on a fundamental funding invariance principle. He shows that as long as all the funding cashflows are included, the choice of discounting rate is irrelevant. He also finds that while fair-value option debit valuation adjustment can reduce the funding valuation adjustment, it does not eliminate it completely
There is intense debate in the industry about best practices for marking, managing and mitigating counterparty risk charges and funding costs. The inclusion of funding valuation adjustment(FVA) for unsecured derivatives has been heavily debated by practitioners and academics; and the marking methodology for debit valuation adjustment (DVA) still raises many questions.
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According to the Ernst &Young 2012 CVA/FVA Survey, all banks record credit valuation adjustment (CVA)
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