Banks work together in effort to reduce XVA costs

Dealers offer rewards to clients and rivals for help in cutting valuation adjustments

XVA savings from optimisation can add up, say dealers

The rising impact of funding adjustments for derivatives trades is pushing dealers to actively manage these costs using a variety of methods – with banks that stand to benefit offering juicy incentives to clients and other dealers to play along.

Valuation adjustments – also known as XVAs – reflect costs that are built into the price of derivatives to take into account factors such as capital, funding, counterparty risk and the risk of a dealer’s own default.

Some banks have previously taken an

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Dmitry Pugachevsky, director of research at Quantifi, explores why building an accurate and robust interest rate curve has considerable implications for a broad range of financial operations – from setting benchmark rates to managing risk – and hinges on…

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