Putting the fun in funding valuation adjustment
John Hull has been writing about over-the-counter derivatives for almost 30 years – often with Alan White, a fellow finance professor at the University of Toronto – but he says nothing has generated as much feedback as the article the pair contributed to Risk’s 25th anniversary issue (Risk25 July 2012, pages 83–85). That’s because, in essence, Hull and White were arguing that derivatives pricing theory should trump current market practice.
Specifically, they say trading desks should not charge a
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