FVA for general instruments

Computing the funding valuation adjustment (FVA) is hard, as it requires the numerical solution of generally non-linear partial differential equations. In this paper, Alexander Antonov, Marco Bianchetti and Ion Mihai develop a universal and efficient approach to numerical FVA calculation for portfolios of general instruments with multiple stochastic assets and funding sources

Frustrated man at the blackboard during a maths class

One of the main lessons from the crisis has been that the price of financial instruments must include credit and funding risk components. The credit risk component accounts for the risk of default of the counterparties involved in the transaction, and leads to credit and debt valuation adjustments (CVA and DVA). The funding risk component accounts for the costs and benefits of the strategy adopted to borrow and lend the funds required or generated by the derivative, the hedge, and their possible

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Credit risk & modelling – Special report 2021

This Risk special report provides an insight on the challenges facing banks in measuring and mitigating credit risk in the current environment, and the strategies they are deploying to adapt to a more stringent regulatory approach.

The wild world of credit models

The Covid-19 pandemic has induced a kind of schizophrenia in loan-loss models. When the pandemic hit, banks overprovisioned for credit losses on the assumption that the economy would head south. But when government stimulus packages put wads of cash in…

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