XVA – Special report 2019
The term ‘margin valuation adjustment’ (MVA) was introduced in the pages of Risk magazine in April 2015, when Andrew Green and Chris Kenyon published their paper MVA by replication and regression. The pair spelt out the concept of a derivatives valuation adjustment (XVA) covering the cost of posting initial margin (IM) under new rules that would be phased in from the following year.
In a recent webinar, XVA traders agreed that MVA is taking time to grow but, as IM balances inevitably expand, banks need to think about what that means for pricing. This is particularly the case for clients with directional positions, whose trades by their very nature attract more IM with every new line-item.
Whether MVA will eventually end up as a standard component of pricing, or even an accounting adjustment, is hard to say. But it seems the heady days of the early to mid-2010s, when every obscure derivatives cost discovered by a quant was immediately incorporated into standard market pricing, are far behind us.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
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. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
MVA taking the long road to acceptance
Four years on, the adjustment is still not a standard part of non-cleared swap pricing
European FRTB proposals spark XVA overload fears
Banks warn of overly complex revaluation process and heightened risk of backtest fails
The theoretical foundations of XVAs
Bloomberg analyses the theoretical basis of XVAs, focusing on the works and findings of its head of quantitative XVA analytics, Mats Kjaer, who emphasises the role of the capital valuation adjustment as a major driver of derivatives trading profitability…
In the balance redux
Mats Kjaer developes a dynamic balance-sheet pricing model for valuation adjustments
FVA – Time to go asymmetric?
Despite being introduced over six years ago, there is still no market consensus on how to calculate funding valuation adjustments. One point of contention is whether to use the same funding curve for borrowing and lending (symmetric funding) or to use…
Singapore banks begin to phase in XVA
DBS, OCBC and UOB start using valuation adjustments, but face hedging hurdles for CVA
Competitive differentiation – Reaping the benefits of XVA centralisation
A forum of industry leaders discusses the latest developments in XVA and the strategic, operational and technological challenges of derivatives valuation in today’s environment, including the key considerations for banks looking to move to a standardised…
Basel III heralds wild CVA capital swings
Minimum required capital for CVA to climb 64% for large banks, but some banks will see falls of up to 67%
JP Morgan’s CVA charge jumps $249m in Q2
All US G-Sibs post higher CVA capital requirements for the quarter
CVA, debt raising said to drive SoftBank CDS trading
Volumes rise as tech giant’s debt spree forces banks to hedge their counterparty exposure
Sovereign swaps users should learn from Italy’s mistakes
Posting collateral is a cost debt offices must embrace, argues Stefania Perrucci
Fed pushes big banks to calculate CVA for CCPs
Banks including JP Morgan and Credit Suisse told to quantify exposure to CCPs for annual stress tests