XVA for Margined Trading Positions

Leif Andersen

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)

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: