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.
Solving the data challenge: technical solutions for optimisation of risk management, capital and liquidity resources
Since the financial crisis that began in 2007–08, regulatory pressure on requirements around capital adequacy, liquidity, funding, balance sheet size and leverage has become increasingly intense. As a consequence, financial institutions need to manage…
Nomura nets ¥3.8 billion from CVA and DVA gains
Windfall offsets previous quarter’s loss more than three times over
Liquidity valuation adjustment costs JPM $235m
Tweak to derivatives book weighs on the bank’s fixed income revenues
After Archegos, a bigger role for XVA desks?
Credit Suisse has stalled on call to expand XVA remit; others think it would have helped, but disagree on how
Axes that matter: PCA with a difference
Differential PCA is introduced to reduce the dimensionality in derivative pricing problems
Derivatives pricing starts feeling the heat of climate change
Quants find physical and transition risks can lead to significant rise in CVA
How XVA quants learned to trust the machine
Initial scepticism about using neural networks for derivatives pricing is giving way to enthusiasm
Deep XVAs and the promise of super-fast pricing
Intelligent robots can value complex derivatives in minutes rather than hours
Hedging valuation adjustment gets cold shoulder from banks
Dealers back the idea of charging for hedging costs but not as part of a new XVA
China netting law drives interest in CSAs
Steady growth in contracts with CSAs suggests confidence that clean netting is near
Podcast: Barclays’ Ben Burnett on how banks can implement HVA
New valuation adjustment may lead to more efficient management of derivatives books
The cost of hedging XVA
HVA is framed consistently with other valuation adjustments
A look at future exposures, through a 19th century lens
Can a centenarian maths idea speed up the calculation of forward sensitivities?
How sovereigns learned to live with two-way CSAs
Some say new collateral terms ensured access to markets during last year’s meltdown
Penalty methods for bilateral XVA pricing in European and American contingent claims by a partial differential equation model
Under some assumptions, the valuation of financial derivatives, including a value adjustment to account for default risk (the so-called XVA), gives rise to a nonlinear partial differential equation (PDE). The authors propose numerical methods for…
How XVAs hit top US banks’ trading revenues in 2020
JP Morgan led systemic banks on losses due to valuation adjustments
XVAs ate $401m of JP Morgan’s revenues in 2020
Credit valuation adjustment on derivatives cost $337 million alone
Putting the H in XVAs
Barclays quant proposes methodology for factoring hedging costs into derivatives valuations
Technology innovation of the year: Scotiabank
Risk Awards 2021: new risk engine can run nearly a billion XVA calculations per second
Hedging valuation adjustment: fact and friction
Transaction costs’ impact on hedging can now be quantified
The slow corporate embrace of CSAs
Risk.net research finds 28 of 50 large companies now have CSAs – but has the trend run its course?
Review of 2020: chaos on a roll
Vanishing liquidity, the Ronin collapse, XVAs – the pandemic wreaked havoc in risk transfer markets
CVA charges for Canadian dealers edge off Covid highs
At CIBC, CVA charges fell 12% quarter on quarter
A guiding light for corporates lost in the fog of XVAs
Chris Kenyon proposes a framework for optimising XVAs – from the client perspective