学术报告

xVA: Definition, Evaluation and Risk Management

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题目:xVA: Definition, Evaluation and Risk Management
报告人:Lixin Wu (香港科技大学)
时间:2019年1月16日10:00-11:00
地点:致远楼101室
Abstract:xVA is a collection of valuation adjustments made to the classical risk-neutral valuation of a derivative or derivatives portfolio for pricing or for accounting purposes, and it has been a matter of debate and controversy. This presentation is intended to clarify the notion of xVA as well as the usage of the xVA items in pricing, accounting or risk management. Based on replication pricing using shares and credit default swaps, we attribute the P\&L of a derivatives trade into the compensation for counterparty default risks and the costs of funding. The expected present values of the compensation and the funding costs under the risk-neutral measure are defined to be the bilateral CVA and FVA, respectively. The latter further breaks down into FCA, MVA, ColVA and KVA. We show that the market funding liquidity risk, but not any idiosyncratic funding risks,can be bilaterally priced into a derivative trade, without causing price asymmetry between the counterparties. We question the effectiveness of FVA-based risk measures, and call for the adoptionof VaR or CVaR methodologies for managing funding risks. The pricing of xVA of an interest-rate swap is presented.

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