Valuation adjustments (XVAs)
WHAT IS THIS? The XVAs are a family of adjustments that can be made to the price of a derivatives trade, reflecting counterparty risk (CVA), own-default risk (DVA), funding (FVA), capital (KVA) and margin (MVA). Their theoretical roots and practical implementation are still debated, but pragmatism also matters: banks that ignore XVAs are at risk of mispricing a trade; banks that include them are at risk of never winning a trade.
Getting a handle on model parameters
Mean reversion in rate parameters opens the door to dimensionality reduction
EU banks show basic instinct for credit valuation adjustments
Simpler approach to CVA appeals even to some already using more complex models for counterparty risk
RBC’s CVA risk charges swell 42% in first year under FRTB
Bloating RWAs contrast with declines at peers employing new standardised approach
Credit risk transfer, with a derivatives twist
Dealers angle to revive market that enables them to offload counterparty exposures, freeing up capital
Technology vendor of the year: Numerix
Risk Awards 2025: Fincad and PolyPaths deals added coverage; AAD and cloud refactoring boosted speed
XVA solution of the year: Murex
With predictions of when the Fed might cut rates constantly changing, it has been a roller-coaster year for markets. This has encouraged financial institutions to push out new innovations to their clients. Having reliable support with XVAs helps them…
Cable basis set to shrink as pension buyouts dwindle
BoE rate cuts and tightening US credit spreads expected to further normalise the sterling-US dollar cross-currency basis
From chaos to clarity: the role of clean data in banks’ digital journeys
In a Risk Live Europe panel session sponsored by Numerix, experts explored the role that clean and accurate data plays in digital transformation. Here we examine the main themes arising from the discussion
The post-Archegos risk model rebuild begins… slowly
Following regulatory prodding, banks start to overhaul counterparty risk models. A flurry of new research on the topic may aid the effort
Thames Water: a handy guide for worried counterparties
The UK’s largest water company – now junk-rated – has £1.3bn in swaps liabilities. Dealers ought to be safe, but face a host of headaches and questions
CVA sensitivities, hedging and risk
A probabilistic machine learning approach to CVA calculations is proposed
Can Citi’s XVA desk help solve risk data failings?
Resolution plan reviews exposed material limitations in banks’ ability to unwind derivatives
Banks must break data silos to improve pricing decisions
Data consistency is increasingly key to judging risk and reacting quickly in a crisis, writes former XVA practitioner
Fed strengthens stress tests with focus on counterparty defaults
The Fed's 2024 stress test examines how banks handle complex risks, such as WWR and jumps at default. Dmitry Pugachevsky, head of research at Quantifi, discusses how the integration of these factors into XVA calculations provides a more comprehensive…
RBC’s CVA capital charge up 22% since FRTB adoption
Bank eschewed revised standardised approach in favour of simpler yet constraining formulas
Japanese banks reap ¥9trn RWA savings from FRTB switch
Tokyo’s dealers fare better than overseas rivals on new CVA and market risk approaches
Basel triggers new tussle on anti-Archegos rules
Critics argue new guidelines on counterparty credit risk are either unworkable, or don’t go far enough to tackle concentration and wrong-way risk
DVAs inflate US banks’ liabilities by $4.9bn
Credit spread retrenchment since last year’s crisis comes with flipside of larger structured-product liabilities
Mastering XVA dynamics from the buy side
Amid fluctuating prices and macroeconomic uncertainty, buy-side firms are taking a more proactive role in challenging the derivatives valuations of their sell-side counterparties
CVA swap: a new type of capital relief trade
Dmitry Pugachevsky, Quantifi, discusses the emergence of the CVA swaps market
Future expectations for XVA and counterparty credit risk management
Alberto Micucci, director, financial risk and analytics at S&P Global Market Intelligence, discusses his future expectations for XVA and counterparty credit risk management.