MVA: swaps scale new heights in complexity

With the non-cleared margin rules looming, banks are turning their attention to calculating a new derivatives valuation adjustment capturing the cost of funding initial margin. It is turning out to be more complicated than anyone realised

Derivatives pricing experts have experienced 'false summit' syndrome with the advent of MVA

In mountaineering terminology, a false summit is what appears to be the pinnacle of the mountain; upon reaching it, the real summit turns out to be lost in the clouds.

Derivatives pricing experts know the feeling well. Having scaled the bafflingly sheer faces presented by other swaps pricing add-ons, they are now staring up at arguably the most challenging of them all – margin valuation adjustment (MVA).

"MVA is the new guy everyone is worried about," says Jerome De Vasconcelos, head of credit