Banks work together in effort to reduce XVA costs
Dealers offer rewards to clients and rivals for help in cutting valuation adjustments
The rising impact of funding adjustments for derivatives trades is pushing dealers to actively manage these costs using a variety of methods – with banks that stand to benefit offering juicy incentives to clients and other dealers to play along.
Valuation adjustments – also known as XVAs – reflect costs that are built into the price of derivatives to take into account factors such as capital, funding, counterparty risk and the risk of a dealer’s own default.
Some banks have previously taken an
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