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.
Podcast: Barclays’ Ben Burnett on how banks can implement HVA
New valuation adjustment may lead to more efficient management of derivatives books
The cost of hedging XVA
HVA is framed consistently with other valuation adjustments
A look at future exposures, through a 19th century lens
Can a centenarian maths idea speed up the calculation of forward sensitivities?
How sovereigns learned to live with two-way CSAs
Some say new collateral terms ensured access to markets during last year’s meltdown
Penalty methods for bilateral XVA pricing in European and American contingent claims by a partial differential equation model
Under some assumptions, the valuation of financial derivatives, including a value adjustment to account for default risk (the so-called XVA), gives rise to a nonlinear partial differential equation (PDE). The authors propose numerical methods for…
How XVAs hit top US banks’ trading revenues in 2020
JP Morgan led systemic banks on losses due to valuation adjustments
XVAs ate $401m of JP Morgan’s revenues in 2020
Credit valuation adjustment on derivatives cost $337 million alone
Putting the H in XVAs
Barclays quant proposes methodology for factoring hedging costs into derivatives valuations
Technology innovation of the year: Scotiabank
Risk Awards 2021: new risk engine can run nearly a billion XVA calculations per second
Hedging valuation adjustment: fact and friction
Transaction costs’ impact on hedging can now be quantified
The slow corporate embrace of CSAs
Risk.net research finds 28 of 50 large companies now have CSAs – but has the trend run its course?
Review of 2020: chaos on a roll
Vanishing liquidity, the Ronin collapse, XVAs – the pandemic wreaked havoc in risk transfer markets
CVA charges for Canadian dealers edge off Covid highs
At CIBC, CVA charges fell 12% quarter on quarter
A guiding light for corporates lost in the fog of XVAs
Chris Kenyon proposes a framework for optimising XVAs – from the client perspective
Client engineering of XVA
A client’s guide to reducing XVA in times of need
Podcast: Matthias Arnsdorf on a new – and cheaper – KVA
Quant proposes approach anchored by a dealer’s default rate rather than its return on equity
KVA as a transfer of wealth
A capital valuation adjustment designed to preserve a firm’s value to shareholders is introduced
At UniCredit, XVAs amped trading gains in Q3
Italian bank claimed a €110 million benefit to earnings from valuation adjustments
Funding pain prompts calls to rehome FVA
Dealers push to move derivatives funding costs out of P&L following March’s outsize losses
Danske quants discover speedier way to crunch XVAs
Differential machine learning produces results “thousands of times faster and with similar accuracy”
Differential machine learning: the shape of things to come
A derivative pricing approximation method using neural networks and AAD speeds up calculations
Will the exit price be right in new Isda docs?
Industry body is updating unloved procedure for valuing terminated swaps
XVA traders have no time to rest on laurels
Markets have calmed, but they may not be out of the woods yet
CVA desks arm themselves for the next crisis
March’s volatility forces dealers to fine-tune hedging strategies