Landmarks in XVA
First published:
ISBN: 9781782722939
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XVA: A Banking Supervisory Perspective
Introduction
Preface to Chapter 1
Being Two-Faced over Counterparty Credit Risk
Risky Funding: A Unified Framework for Counterparty and Liquidity Charges
DVA for Assets
Pricing CDSs’ Capital Relief
The FVA Debate
The FVA Debate: Reloaded
Regulatory Costs Break Risk Neutrality
Risk Neutrality Stays
Regulatory Costs Remain
Funding beyond Discounting: Collateral Agreements and Derivatives Pricing
Cooking with Collateral
Options for Collateral Options
Partial Differential Equation Representations of Derivatives with Bilateral Counterparty Risk and Funding Costs
In the Balance
Funding Strategies, Funding Costs
The Funding Invariance Principle
Regulatory-Optimal Funding
Close-Out Convention Tensions
Funding, Collateral and Hedging: Arbitrage-Free Pricing with Credit, Collateral and Funding Costs
Bilateral Counterparty Risk with Application to Credit Default Swaps
KVA: Capital Valuation Adjustment by Replication
From FVA to KVA: Including Cost of Capital in Derivatives Pricing
Warehousing Credit Risk: Pricing, Capital and Tax
MVA by Replication and Regression
Smoking Adjoints: Fast Evaluation of Monte Carlo Greeks
Adjoint Greeks Made Easy
Bounding Wrong-Way Risk in Measuring Counterparty Risk
Wrong-Way Risk the Right Way: Accounting for Joint Defaults in CVA
Backward Induction for Future Values
A Non-Linear PDE for XVA by Forward Monte Carlo
Efficient XVA Management: Pricing, Hedging and Allocation
Accounting for KVA under IFRS 13
FVA Accounting, Risk Management and Collateral Trading
Derivatives Funding, Netting and Accounting
Managing XVA in the Ring-Fenced Bank
XVA: A Banking Supervisory Perspective
An Annotated Bibliography of XVA
In the wake of the global financial crisis, many papers have been published on the subject of XVA (as the collective family of derivative valuation adjustments has become known), offering various perspectives: the accountant, the stockholder and the trader. Here we offer a new perspective: that of a banking supervisor. In this role, we strive to achieve internationally consistent standards promoting safety and soundness of the global financial system, while ensuring application of those standards and sound risk management practice in the US. It is difficult to provide a single supervisory perspective, since the viewpoint can differ depending on the role of the supervisor. A supervisor concerned with financial stability could take a different perspective from one concerned with depositor protection, for example. These different perspectives are an important part of the XVA debates. In analysing these issues from the perspective of a banking supervisor, we highlight the following issues.
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- Degree of overlap of funding valuation adjustment11FVA is used here in a broad sense to cover a variety of approaches to incorporate differences in funding costs for derivatives
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