While Credit Value Adjustment (CVA) and Debit Value Adjustment (DVA) are relatively well understood by both quants and practitioners in the derivatives markets, the concept of Funding Value Adjustment (FVA) remains the subject of much active discussion.
On July 24, 2012 Dr. Alexander Sokol of CompatibL discussed FVA and its role in derivative valuations, trading, and liquidity management.
In the first part of the webinar, Dr. Sokol discussed the role of FVA in making OIS valuations consistent with real-life Credit Support Annexes (CSAs) which have thresholds and minimum transfer amounts (MTA) as well as curve selection for the funding cost (FCA) and funding benefit (FBA) adjustments. This section also discussed wrong way risk in FVA – the correlation of funding requirements included in FVA with funding costs.
The second part of the webinar focused on the role of FVA in CVA/DVA modeling where FVA captures the funding cost or benefit of collateral choices which also affect CVA/DVA. This is especially important for Central Counterparties (CCPs) where the absence of CVA is offset by the increased funding cost for overcollateralization required by central clearing.
Dr. Sokol covered the following key topics:
- FVA and OIS valuation in the presence of CSA thresholds and MTAs
- The role of FVA in cost/benefit analysis of switching to central clearing
- Selecting the FCA and FBA curves
- FVA and liquidity management
- Wrong way risk in FVA
To view the 60 minute webinar replay, just register on the right side of this page.
Featured Numerix Speakers:
Dr. Alexander Sokol, CEO of CompatibL, formerly of Numerix (Founder)
Alexander Sokol is a founder of Numerix, a leading derivatives and risk analytics vendor, and CompatibL, a Numerix implementation and custom development partner. Alexander’s research interests include CVA and wrong way risk modeling. He is the author of “A Practical Guide to Monte Carlo CVA”, published in “Lessons from the Financial Crisis” edited by Arthur M. Berd (Risk Books, 2010). Alexander holds a PhD from the Landau Institute for Theoretical Physics.
Moderator: Jim Jockle, Senior Vice President, Marketing
Mr. Jockle leads the company's global marketing efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to customers in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing.
Prior to joining Numerix, he served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, Mr. Jockle built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. He also oversaw the brand development of a new company dedicated to the enhancement of credit derivative and structured-credit ratings, products and services. Prior to Fitch, Mr. Jockle was a member of the communications team at Moody's Investors Service.