The FVA debate continues: Hull and White respond to their critics

John Hull and Alan White sparked a heated debate when their article in Risk’s 25th anniversary issue argued funding costs should not be reflected in derivatives prices. Here, they respond to their critics

When we wrote our article arguing that, contrary to industry practice, derivatives prices should not include a so-called funding valuation adjustment (FVA) to reflect the cost to dealers of funding their hedging portfolios, the interest it would generate never occurred to us (Risk25 July 2012, pages 83–85, Risk September 2012, pages 18–22, and pages 23–24). Much to our surprise, we have been inundated with responses from practitioners all over the world, on both sides of the argument. It seems