Banks at risk of FVA arbitrage, say Hull and White

easy-targeting

Banks that include a funding valuation adjustment (FVA) in derivatives prices may be vulnerable to predatory customers, according to two academics – a claim that is already being attacked by traders.

John Hull and Alan White, professors of finance at the University of Toronto, whose article in Risk last year ignited a fierce debate over whether derivatives prices should include FVA, say in a new paper that the pricing disparities it creates present an arbitrage opportunity that enables other mar

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