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risks
Andrew Green
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1 XVAs Defined
6 Risk Limits
7 Bibliography
XVA Definition
CVA counterparty credit risk
DVA own credit risk - often seen as overlapping FBA
FBA funding benefit
FCA funding cost
FVA = FBA + FCA
ColVA difference between collateral return and risk-free rate (OIS)
KVA (regulatory) capital costs
MVA cost of initial margin
TVA tax
RVA replacement of derivative on downgrade
NVA(?) negative rates(?)
XVA Valuation
Adjustment
CVA (1 RC )C r + C + B V (u ) + Credit
FVA sF ditto V (u ) Funding
COLVAX sX ditto X (u ) Collateral
COLVAIC rIC ditto IC (u ) Margin
KVA K rB ditto K (u ) Capital
MVA s F s IB ditto IB (u ) Margin
TVAE E ditto E (u ) Tax
TVAC C (1 )(1 ) ditto E
Tax
Table: The parameter values in the generic XVA integral for the funding strategy 1
and standard close-out conditions.
Traditional
Market Risk: VaR, Stress Tests
Credit Risk: PFE, Stress Tests
Regulatory Implied
Market Risk - Basel 2, FRTB [5, 13, 11, 14]
Credit Risk - Basel 3, SA-CCR [7, 12]
Stress - EBA stress tests, DFAST and CCAR
Leverage Ratio [7, 18, 19, 23]
Funding / Liquidity - LCR, NSFR [8, 9]
[5] BCBS.
International Convergence of Capital Measurement and Capital
Standards.
Bank for International Settlements, 2006.
[6] BCBS.
Application of own credit risk adjustments to derivatives - consultative
document.
Bank for International Settlements, December 2011.
[7] BCBS.
Basel III: A global regulatory framework for more resilient banks and
banking systems.
Bank for International Settlements, 2011.
[8] BCBS.
Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring
tools.
Bank for International Settlements, 2013.
[9] BCBS.
Basel III: the Net Stable Funding Ratio.
Bank for International Settlements, 2014.
[10] BCBS.
Margin requirements for non-centrally cleared derivatives.
Bank for International Settlements, 2015.
[11] BCBS.
Review of the Credit Valuation Adjustment (CVA) risk framework -
consultative document.
Bank for International Settlements, 2015.
[12] BCBS.
Revisions to the Standardised Approach for credit risk.
Bank for International Settlements, 2015.
[13] BCBS.
Minimum capital requirements for market risk.
Bank for International Settlements, 2016.
[14] BCBS.
Reducing variation in credit risk-weighted assets - constraints on the
use of internal model approaches.
Bank for International Settlements, 2016.
[15] Christoph Burgard and Mats Kjaer.
Funding Strategies, Funding Costs.
Risk, 26(12):8287, December 2013.
[19] EBA.
EBA Final draft Implementing Technical Standards on disclosure of
the leverage ratio under Article 451(2) of Regulation (EU ) No
575/2013 (Capital Requirements Regulation CRR).
European Banking Authority, 2014.
[20] Andrew Green and Chris Kenyon.
MVA: Initial Margin Valuation Adjustment by Replication and
Regression.
Risk, 28(5), 2015.
[21] Richard David Kenyon and Chris Kenyon.
Accounting for kva under ifrs 13.
Risk, 29, March 2016.