The black art of FVA, part III: a $4 billion mistake?
Quants argue banks are inflating FVA; Crédit Agricole among those weighing new approach
A $6.2 billion loss that 24 banks have collectively racked up since the end of 2012 may have been a mistake, new thinking suggests – it should never have been reported as a loss, and should have been smaller. Perhaps by as much as $4 billion.
Those are the startling conclusions of three quants, who published their work in Risk earlier this year (Risk February 2015). They argue funding valuation adjustment (FVA) – the costs and benefits arising when uncollateralised derivatives are hedged with
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