Liquidity & Funding Risk 2013: FVA will be dead in three years, says Hull
Arch-critic of funding valuation adjustment says regulation will make it obsolete – reducing industry's exposure to arbitrage
The growing use of collateral in over-the-counter derivatives trades will kill off funding valuation adjustment (FVA) – and supposed arbitrage opportunities arising from it – within two to three years, according to John Hull, a professor of finance at the University of Toronto. Dealers charge FVA on uncollateralised trades to compensate for the cost of posting collateral on associated hedges, and Hull sparked a fierce debate last year after arguing in an article for Risk that the practice should
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