Valuation adjustments (XVA)
WHAT IS THIS? The XVAs are a family of adjustments that can be made to the price of a derivatives trade, reflecting counterparty risk (CVA), own-default risk (DVA), funding (FVA), capital (KVA) and margin (MVA). Their theoretical roots and practical implementation are still debated, but pragmatism also matters: banks that ignore XVAs are at risk of mispricing a trade; banks that include them are at risk of never winning a trade.
CVA dismay: final Basel rules disappoint dealers
Minor tweaks don’t make up for removal of internal modelling, say banks
Quant analyst Antonov to swap Numerix for Standard Chartered
New role in London only second for Numerix veteran
Evolutionary algos for optimising MVA
Alexei Kondratyev and George Giorgidze apply two evolutionary algos to MVA optimisation
Degree of influence, 2017: Quants dissect initial margin
Initial margin, optimal execution and applications of machine learning were the hottest topics of 2017
CVA pay day: calculation arbitrage boosts bank profits
Lack of convergence allows some banks to benefit from an arbitrage between booking and pricing the adjustment
A model for the valuation of assets with liquidity risk
This paper describes a model for the valuation of assets on a bank balance sheet with liquidity risk. It applies the model to single cashflows, loans, bonds and derivatives. In addition, the calibration to London Interbank Offered Rate basis spreads is…
XVA quant Kenyon leaves Lloyds for MUFG
Kenyon jumps ship for similar role in XVA quant modelling
Capital savings from new IM regime elude dealers
Slow model development and approval processes mean banks yet to see benefits expected under margin rules
Banks say Europe’s CVA proxy-spread plans lack flexibility
Dealers welcome EBA proposals but say limited number of eligible counterparties means few benefits
Japanese banks eye phased CVA introduction
Working group reports “growing need” for valuation adjustment but cherry-picking fears persist
Mifid II cost disclosures pose risk to liquidity, warn banks
Dealers hope standardised methodology for some clients could mitigate impact
All MVA needs is a first-mover
Fair value adjustment for initial margin should be reflected in accounting statement
The price is still wrong: banks tackle bond CSA discounting
Diverging Eonia and European repo rates spur banks to look at valuations of swaps with bond collateral
Mnuchin makes life harder for quants
Proposed CCAR changes make KVA calculations even more complex
Accelerated MVA in triCalculate
Sponsored feature: NEX TriOptima
Margin settlement risk and its effect on CVA
Sponsored feature: CompatibL
XVA reaches far and wide
Sponsored Q&A: CompatibL, Murex and Numerix
Buy side unimpressed with Mifid II cost transparency rules
Clients question value of receiving dealers’ swaps profit margin data
Banks split on Mifid II pre-trade compliance
Esma promises guidance, but some say ‘firm, executable’ quotes are impossible
A sound modelling and backtesting framework for forecasting initial margin requirements
Anfuso, Aziz, Loukopoulos and Giltinan propose a method to develop and backtest forecasting models for IM
European banks tire of CVA guessing game
Continued political wrangling over Europe’s CVA exemption increases uncertainty for dealers
TriOptima adds MVA calculations to XVA service
Three firms have signed up to use the tool, which calculates MVA across 100,000 scenarios
FVA: the story so far
How Risk.net has covered key developments in funding valuation adjustment