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.
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XVA traders have no time to rest on laurels
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March’s volatility forces dealers to fine-tune hedging strategies
Virus volatility swelled CVA charges at Barclays, NatWest in H1
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Commerzbank takes €111m of XVA losses in H1
Valuation adjustment benefits gained in Q2 did not offset huge Q1 losses
HSBC trading unit hit by $355m of XVA costs in H1
Wider spreads continued to eat into derivatives values
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JP Morgan posts $510m XVA gain
Benefit reverses some of the previous quarter’s record loss
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How XVAs shaped top US dealers’ trading revenues in Q1
Citi disclosed a -$835 million CVA impact on revenues
ING hit by €92m XVA loss
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Crédit Agricole, Natixis, UniCredit pummelled by XVA losses
Top banks take combined €207 million hit from valuation adjustments
NatWest Markets’ CVA reserve swells £136m
Funding benefit and debit valuation adjustment help offset derivatives charge
XVAs take $346m bite out of HSBC’s trading profits
Derivatives valuation adjustment impact pushes trading profits down 49%
European banks seek capital relief for CVA hedges
Volatile trading in March caused CVA hedges to dominate market risk RWAs at some smaller dealers
Credit Suisse takes $51m derivatives hedging loss
Net trading revenues down 47% on year-ago quarter
At Bank of America, trading revenues get a $300m DVA boost
But credit and funding valuation adjustments deducted $492 million from other income
FVA losses back in spotlight after coronavirus stress
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JP Morgan takes $951m XVA hit
Funding spread widening blamed for majority of Q1 hit
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