Risk glossary

 

Capital valuation adjustment (KVA)

Capital valuation adjustment reflects the cost of holding regulatory capital as a result of a derivative position throughout the trade’s life. While it applies to all derivatives contracts, it is more punitive on trades that are not cleared. Basel III has increased the capital imposed on banks for holding derivatives contracts and KVA captures the cost of this additional regulatory capital.

See also Valuation adjustments (XVA).

Click here for articles on capital valuation adjustment.

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