What is XVA (X-Value Adjustment)?

What is XVA (X-Value Adjustment)?

Valuation adjustment is the umbrella name for adjustments made to the fair value of a derivatives contract to take into account funding, credit risk and regulatory capital costs. Dealers typically incorporate the costs associated with XVAs into the price of a new trade.

What is XVA calculation?

X-Valuation Adjustment is a catch-all term for various adjustments made to derivative instruments. These kinds of calculations are computationally intensive: they require a modeller to calculate a larger number of default scenarios and the potential loss (Potential Future Exposure, or PFE) in each case.

What does XVA stand for in finance?

XVA, or X-Value Adjustment, is a collective term that covers the different types of valuation adjustments relating to derivative contracts.

What is XVA in risk?

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).

What does an XVA trader do?

XVA traders are engaged in a broad range of functions including pricing, hedging, risk analysis and optimization across various derivative products including rates, FX, commodities, credit and equities.

What does XVA trading desk do?

The XVA desk centralises the various valuation adjustments and receives all data inputs for measuring XVAs. XVA centralisation offers significant benefits in terms of best practice, one of which is the aggregation of trades from across different trading desks and asset classes.

What is Basel III credit value adjustment?

CVA is an adjustment to the fair value (or price) of derivative instruments to account for counterparty credit risk (CCR). Thus, CVA is commonly viewed as the price of CCR. … The purpose of the Basel III CVA capital charge is to capitalise the risk of future changes in CVA.

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What is FVA derivative?

An FVA is an adjustment to the value of a derivative or a derivatives portfolio that is designed to ensure that a dealer recovers its average funding costs when it trades and hedges derivatives. Theoretical arguments indicate that the dealer’s valuation should not recover the whole of its funding costs.

What is debt valuation adjustment?

Debt Value Adjustment (DVA) is basically CVA from the counterparty’s perspective. If one party incurs a CVA loss, the other party records a corresponding DVA gain. DVA is the amount added back to the MTM value to account for the expected gain from an institution’s own default.

How much do XVA traders make?

$64k-$175k XVA Trading Jobs (NOW HIRING) | ZipRecruiter.

What is liquidity valuation adjustment?

Definition: The Liquidity Value Adjustment (LVA) is the discounted value of the difference between the collateral rate and the risk free rate on the collateral, and it represents the profit or loss produced by the liquidation of the Net Present Value of the derivative contract due to the collateralization agreement.

What is BA CVA and SA CVA?

The BA-CVA only encompasses the recognition of hedges pertaining to the counterparty credit risk component. It does not recognise exposure associated hedges. In the SA-CVA, calculation of the CVA risk capital requirements must be on all eligible transactions and their eligible CVA hedges.

What is the difference between CVA and DVA?

The same parameters are used to estimate DVA as CVA. In principle, CVA = DVA for a derivative that has unilateral credit risk such as an option contract. The difference is only in perspectiveCVA is the credit risk facing the option holder whereas DVA reflects the credit risk of the entity that writes the contract.

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What is an uncollateralized derivative?

Uncollateralized derivatives are limited to trades between financial counterparties and. non-financial counterparties, and therefore represent a very small fraction of the market.

What is DVA debit valuation adjustment?

Debit Valuation Adjustment (DVA) The debit valuation adjustment is the impact of your credit risk on the value of a derivative (which would be the CVA from the perspective of your counterparty looking at you).