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.
Cutting Edge introduction: Taming MVA
Lloyds quants tackle computation of margin add-on for derivatives prices
Small banks underpricing FVA, dealers claim
Dealers claim to be losing trades because smaller rivals are mispricing
Putting FVA in a cage
If banks can't standardise funding charges, accountants or regulators should step in
The black art of FVA, part III: a $4 billion mistake?
Quants argue banks are inflating FVA; Crédit Agricole among those weighing new approach
FVA: How six smaller banks do it
From ING to Danske Bank, regional players are taking part in the FVA debate, but practices are mixed
Basel Committee launches FVA project
US regulators also looking into divergent valuations for uncollateralised swaps
Goodbye Sonia flat: banks rethink swaps with bond collateral
Higher discount rate can cut payouts to in-the-money clients by millions
KVA: banks wrestle with the cost of capital
As the bank capital burden grows, dealers are trying to price in the associated costs
Credit Suisse takes Sfr279 million FVA loss
Credit Suisse becomes the fifteenth bank known to have taken an FVA charge
AAD vs GPUs: banks turn to maths trick as chips lose appeal
A maths trick is taking on – and beating – fancy chips as banks try to boost their computing power
Cutting edge introduction: The only way is backward
Quants find way to streamline future value calculations for exotic
Backward induction for future values
A new framework for derivatives pricing with valuation adjustments
KVA: capital valuation adjustment by replication
KVA are introduced to take into account the effect of capital on funding