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.
A guiding light for corporates lost in the fog of XVAs
Chris Kenyon proposes a framework for optimising XVAs – from the client perspective
Client engineering of XVA
A client’s guide to reducing XVA in times of need
Podcast: Matthias Arnsdorf on a new – and cheaper – KVA
Quant proposes approach anchored by a dealer’s default rate rather than its return on equity
KVA as a transfer of wealth
A capital valuation adjustment designed to preserve a firm’s value to shareholders is introduced
At UniCredit, XVAs amped trading gains in Q3
Italian bank claimed a €110 million benefit to earnings from valuation adjustments
Funding pain prompts calls to rehome FVA
Dealers push to move derivatives funding costs out of P&L following March’s outsize losses
Danske quants discover speedier way to crunch XVAs
Differential machine learning produces results “thousands of times faster and with similar accuracy”
Differential machine learning: the shape of things to come
A derivative pricing approximation method using neural networks and AAD speeds up calculations
Will the exit price be right in new Isda docs?
Industry body is updating unloved procedure for valuing terminated swaps
XVA traders have no time to rest on laurels
Markets have calmed, but they may not be out of the woods yet
CVA desks arm themselves for the next crisis
March’s volatility forces dealers to fine-tune hedging strategies
Virus volatility swelled CVA charges at Barclays, NatWest in H1
PRA capital relief for market risk eased the CVA burden at some lenders
Commerzbank takes €111m of XVA losses in H1
Valuation adjustment benefits gained in Q2 did not offset huge Q1 losses
HSBC trading unit hit by $355m of XVA costs in H1
Wider spreads continued to eat into derivatives values
Dealers eye model change to cure CVA capital headache
With hopes of EU regulatory carve-out fading, some banks are taking matters into their own hands
JP Morgan posts $510m XVA gain
Benefit reverses some of the previous quarter’s record loss
Mind the tax when hedging TRS
New model gauges whether deals are still profitable, after taxes
Funding adjustments in equity linear products
How tax asymmetries and Tobin tax affect the pricing of total return swaps
How XVAs shaped top US dealers’ trading revenues in Q1
Citi disclosed a -$835 million CVA impact on revenues
ING hit by €92m XVA loss
Credit trading business tagged for trading losses
Crédit Agricole, Natixis, UniCredit pummelled by XVA losses
Top banks take combined €207 million hit from valuation adjustments
NatWest Markets’ CVA reserve swells £136m
Funding benefit and debit valuation adjustment help offset derivatives charge
XVAs take $346m bite out of HSBC’s trading profits
Derivatives valuation adjustment impact pushes trading profits down 49%
European banks seek capital relief for CVA hedges
Volatile trading in March caused CVA hedges to dominate market risk RWAs at some smaller dealers