2015/06/29 by Yannick Armenti, Armenti, Yannick, Stéphane Crépey +1
Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Complex Systems and Time Series Analysis #Computational Finance (q-fin.CP) #FOS: Economics and business #Financial Markets and Investment Strategies #Pricing of Securities (q-fin.PR) #Risk Management (q-fin.RM)
paper · pdf · doi:10.48550/arxiv.1506.08595
openalex publication_date 2015/06/29 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper develops an XVA (costs) analysis of centrally cleared trading, parallel to the one that has been developed in the last years for bilateral transactions. We introduce a dynamic framework that incorporates the sequence of cash-flows involved in the waterfall of resources of a clearing house. The total cost of the clearance framework for a clearing member, called CCVA for central clearing valuation adjustment, is decomposed into a CVA corresponding to the cost of its losses on the default fund in case of defaults of other member, an MVA corresponding to the cost of funding its margins and a KVA corresponding to the cost of the regulatory capital and also of the capital at risk that the member implicitly provides to the CCP through its default fund contribution. In the end the structure of the XVA equations for bilateral and cleared portfolios is similar, but the input data to these equations are not the same, reflecting different financial network structures. The resulting XVA numbers differ, but, interestingly enough, they become comparable after scaling by a suitable netting ratio.