KVA as a transfer of wealth

A capital valuation adjustment designed to preserve a firm’s value to shareholders is introduced

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Matthias Arnsdorf derives the shareholder loss due to a marginal capital requirement associated with a derivatives transaction. This is a result of a transfer of wealth between the shareholders and creditors of a firm. The charge required to negate this loss can be regarded as a capital valuation adjustment: referred to as KVA2 in this article

Valuation adjustments in derivatives pricing have been the subject of increasing interest in recent years. This is due to the

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