![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
KVA: capital valuation adjustment by replication
Credit (CVA), debit (DVA) and funding (FVA) valuation adjustments are now familiar concepts, but banks also pay for capital. Here, Andrew Green, Chris Kenyon and Chris Dennis introduce a capital valuation adjustment (KVA) to pricing by extending the Burgard-Kjaer semi-replication method, considering that capital may reduce funding needs and hedging transactions themselves generate capital requirements
![money-hand-invest money-hand-invest](/sites/default/files/styles/landscape_750_463/public/import/IMG/758/284758/money-hand-invest-580x358.jpg.webp?itok=q8a1dm9a)
CLICK HERE TO VIEW THE PDF
Capital is a legal requirement for financial institutions holding derivatives, and the requirements have increased over the past few years (Basel Committee on Banking Supervision 2011; Dodd and Frank 2010), so it is surprising few papers include it in derivatives pricing (Hull and White 2014; Kenyon and Green 2013, 2014a,b). Here, we extend the hedging framework of Burgard and Kjaer (2011b, 2013a) and Kenyon and Kenyon (2013) to price the capital requirements of
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-digital.com/terms-and-conditions/subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-digital.com/terms-and-conditions/subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Markets
Franklin Templeton steps back into FX options
Former biggest user of the instrument among US mutual funds returns with $7.6bn of USD/JPY strategies
CME launches term SOFR curve as clearing talks ebb
Give-and-get pricing tool addresses pressing transparency need in $2.5 trillion swaps market
Capital Group grows interest rates swaps book by 62%
Counterparty Radar: Aggregate notional of US mutual fund and ETF positions hit $957 billion in Q1
Corporates look to collars amid rates uncertainty
Selling the floor can cover majority of cap’s premium
Fee compression threatens FX algo innovation
e-FX Forum: Bank algo heads say continued revenue pressures could stifle development
FX options’ MDP migration
Volumes on multi-dealer platforms are climbing, but dealers warn pricing may not be optimal
Collapse of correlation fails to stem zeal for dispersion
New analysis suggests immensely popular relative value strategy may have more upside
BofA extends ‘guaranteed rate’ window to a year
US bank holds spot FX rates for longer period to give alternative hedging tools to smaller clients