# Managing XVAs: from whack-a-mole to Mortal Kombat

## Joined-up effort to tackle XVAs reflects growing impact of derivatives valuation adjustments

In the fairground game of whack-a-mole, players are given a mallet and a variety of holes to keep watch over. Small furry critters then begin to spring from the holes, seemingly at random, only to be bashed back inside by the trusty mallet. The aim is to use skill and brute strength to keep the gardener's menace at bay.

The strategy behind the game is not dissimilar to the one that has so far been used by dealers attempting to manage their derivatives valuation adjustments, or XVAs.

Dealers have long used valuation adjustments to account for factors such as counterparty risk – for example, in the form of credit valuation adjustment (CVA). But over the years, banks have gained a deeper understanding of the implicit costs of the derivatives business. And with that expanded knowledge has come an alphabet soup of new XVAs, including funding valuation adjustment (FVA), capital valuation adjustment (KVA), and most recently, margin valuation adjustment (MVA).