The funding invariance principle

Youssef Elouerkhaoui shows how the choice of discounting rate is irrelevant for pricing

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There is intense debate in the industry about best practices for marking, managing and mitigating counterparty risk charges and funding costs. The inclusion of funding valuation adjustment(FVA) for unsecured derivatives has been heavily debated by practitioners and academics; and the marking methodology for debit valuation adjustment (DVA) still raises many questions.

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According to the Ernst &Young 2012 CVA/FVA Survey, all banks record credit valuation adjustment (CVA)

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