Cutting Edge introduction: fixing FVA

balance566

There has been much disagreement among quants about how and whether to adjust uncollateralised over-the-counter derivatives prices for the cost incurred when funding the accompanying collateralised hedges. It has bordered on bickering at times, partly because no-one can agree on the terms they should use. 

The original article introducing the concept, by London-based Barclays quants Christoph Burgard and Mats Kjaer, referred to a funding cost adjustment (FCA), which many – including their most

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