In the balance redux

Mats Kjaer developes a dynamic balance-sheet pricing model for valuation adjustments


Understanding the interaction between a new derivative contract, its financing and the wider balance sheet during pricing is critical for dealer profitability. For this purpose, Mats Kjaer develops a structural balance sheet model and demonstrates how it can be used to derive consistent firm and shareholder breakeven prices. The latter price often involves a significant capital valuation adjustment, which can be managed statically or hedged dynamically


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