Corporates use XVA caps to limit unwind charges

Veolia caps CVA and FVA unwind costs in trades with 10 banks

Veolia executed its first FVA and CVA cap in 2012

Big corporates have found a new way to reduce the cost of trading derivatives on an uncollateralised basis: pay dealers upfront for a cap on the charges that can accompany an unwind. For the buyer, the cap replaces an unknown cost with a known one, but it further increases the complexity of the business for dealers, which claim the option is impossible to hedge.

Paris-based water, energy and waste giant Veolia is the only company known to have executed the caps, but it claims to have done so wit

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