The impossibility of DVA replication

The impossibility of DVA replication

abacus accounting

The debit valuation adjustment (DVA) that mark-to-market accounting rules insist should be included in derivatives’ prices in order to capture a bank’s own default risk is controversial because the dealer records paper profits – that could even be distributed as staff remuneration – when its creditworthiness deteriorates. Some argue that the DVA is not merely an accounting adjustment, but instead is monetisable through replication strategies. US bank Goldman Sachs, for