The cost of hedging XVA

HVA is framed consistently with other valuation adjustments

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Benedict Burnett and Ieuan Williams generalise the results of a 2021 article by the first author to obtain a formula for the hedging valuation adjustment (HVA) that is consistent with other XVAs. This HVA incorporates friction effects due to hedging both the underlying asset and counterparty credit, along with a contribution from hedge unwinds upon counterparty default. The numerical results for a simple case show that in a realistic situation the HVA can be on

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