Efficient XVA management: pricing, hedging and allocation
Banks must manage their trading books, not just value them. Valuing includes valuation adjustments collectively known as XVA (credit, funding, capital and tax, at least). Here, Chris Kenyon and Andrew Green show how three technical elements can be combined to radically simplify XVA management, both for calculation and implementation
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Banks must calculate and manage valuation adjustments (XVA)across their entire trading portfolio. XVA includes the effectsof credit (CVA,DVA), funding (FVA,MVA) (Burgard&Kjaer 2013; Green & Kenyon 2015a), capital (KVA) (Green, Kenyon & Dennis 2014) and tax (TVA) (Kenyon & Green 2015). XVA management includes allocation, hedging and pricing. Allocation refers to the allocation of XVA, and XVA hedging costs, to desks. Hedging costs require the computation of
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