Regulatory-optimal funding

A treasury viewpoint on the funding optimization problem


Trading desks that require funding typically must pay above the risk-free rate. This has led some to add a funding valuation adjustment (FVA) to derivatives prices, and to a heated debate over the legitimacy of this practice (Hull & White 2012). Some firms are now starting to report explicit FVA line items. However, the FVA literature treats the funding curve as an input to the model (Burgard & Kjaer 2011; Morini & Prampolini 2011). This can vary from the firm's senior unsecured debt to

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