XVA Special report 2018
After a turbulent decade, the past couple of years have arguably been a little easier for the derivatives valuation community. Overnight indexed swap (OIS) discounting is market standard for cash collateralised instruments, while funding and capital valuation adjustments are no longer a matter of debate. Margin valuation adjustment could be on the horizon, but the Street is largely in ‘wait‑and‑see’ mode.
However, benchmark reform is a potential fly in the ointment. For euro swaps collateralised with cash, the rate used for discounting future cashflows – Eonia – will be banned for use in new trades from 2020, as it will not comply with the European Union’s benchmarks regulation.
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