Funded Bilateral Valuation Adjustment

2012/11/07 by Lorenzo Giada, Giada, Lorenzo, Claudio Nordio +1
Economics, Econometrics and Finance · #62H20 #91B70 #FOS: Economics and business #Pricing of Securities (q-fin.PR) #Risk Management (q-fin.RM) #msc:62H20 #msc:91B70 #q-fin.PR #q-fin.RM

paper · pdf · doi:10.48550/arxiv.1211.1564

10 pages, 3 figures

arxiv created 2012/11/07 · arxiv updated 2012/11/08

Abstract

We show how the cost of funding the collateral in a particular set up can be equal to the Bilateral Valuation Adjustment with the "funded" probability of default, leading to the definition of a Funded Bilateral Valuation Adjustment (FBVA). That set up can also be viewed by an investor as an effective way to restructure the counterparty risk arising from an uncollateralized transaction with a counterparty, mitigating or even avoiding entirely the additional capital charge introduced by the new Basel III framework.

Related

• Funding Valuation Adjustment: a consistent framework including CVA, DVA, collateral,netting rules and re-hypothecation
• Funding, Collateral and Hedging: uncovering the mechanics and the subtleties of funding valuation adjustments
• Counterparty Risk and Funding: The Four Wings of the TVA
• An initial approach to Risk Management of Funding Costs
• Impact of the first to default time on Bilateral CVA