DVA for assets

Debit valuation adjustments are becoming well understood for derivatives and liabilities – but can affect the asset side of the balance sheet too. Specifically, assets such as so-called goodwill depend on the creditworthiness of the firm. Chris Kenyon and Richard Kenyon model this relationship and show how it can be hedged

Goldman Sachs

The effect of own-default on liabilities and derivatives through the debit valuation adjustment (DVA) has been widely discussed in pricing literature (Burgard & Kjaer, 2011, Brigo, 2011, Cesari et al, 2010, Pallavicini, Perini & Brigo, 2011, and Crépey, 2012). However, the effect of own-default on assets has yet to attract similar attention (Kenyon & Stamm, 2012, being an exception), although it is clear that default will affect any asset that depends on company existence or performance.

DVA for

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