Margin in Derivatives Trading
First published:
ISBN: 978-1-78272-390-5
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XVA for Margined Trading Positions
Introduction
Variation and Initial Margin in the ISDA Credit Support Annex
Variation and Initial Margin Required by Central Counterparty Clearing Houses
Margin Requirements for Over-the-Counter Derivatives: A Supervisory Perspective
The Emergence and Concepts of the SIMM Methodology
The ISDA Standard Initial Margin Model Backtesting Framework
The Impact of Margin on Regulatory Capital
XVA for Margined Trading Positions
Modelling Forward Initial Margin Requirements for Bilateral Trading
Forward Valuation of Initial Margin in Exposure and Funding Calculations
Margin Value Adjustment for CCPs with Q-Simulated Initial Margin
Bilateral Exposure in the Presence of Margin
Central Counterparty Risk
Robust Computation of XVA Metrics for Central Counterparty Clearing Houses
Efficient Initial Margin Optimisation
Procyclicality in Sensitivity-Based Margin Requirements
Systemic Risks in Central Counterparty Clearing House Networks
7.1 INTRODUCTION
In this foundational chapter, we review a variety of exposure and financing concepts, and provide a basic discussion of credit and funding cost adjustments for margined trade positions. Often going by the umbrella moniker “XVA”, these adjustments are a critical component in the calculation of firm and shareholder profits for margined positions, and take a central role in many chapters of this volume. A full development of the theory behind XVA calculations is both cumbersome and unnecessary for our purposes, so we keep the treatment informal, skipping a number of technical details as we go along. Some of these details will be provided in later chapters, especially those pertaining to numerical issues and to the micro-structure of exposures on the margin period of risk. We provide ample references to preceding and subsequent chapters throughout, for those who wish to dive more deeply into a given topic.
The remainder of is chapter is organised into two sections. First, in Section 7.2 we discuss counterparty credit metrics, methodically progressing from basic default and exposure concepts to equations for the various credit valuation adjustments (CVA and DVA)
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