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Current developments in XVA

Practices in trading, risk controlling, accounting and regulation of OTC-derivatives are continuously evolving in response to an ever changing environment. The value of a derivative is driven by multiple factors (being specific to the bank, the portfolio or the counterpart) which has lead to the emergence of a whole range of valuation adjustments, serving as a correction to the classical risk-free value.


Current hot topics are: 

  • The inclusion of cost for own fund requirements driven by tightening regulation (e.g. SA-CCR, new developments in CVA-charge or leverage ratio)
  • The attribution of financing cost from posting/receiving initial margin in centrally cleared trades as well as certain bilaterally cleared trades
  • The valuation of optionalities in CSAs, e.g. choosing in which currency to post cash collateral, the option to post securities, or floors on interest received/paid for collateral posted/received.

Together with our clients, we continuously develop these topics on an ongoing basis within multiple projects, as well as research, presentations and white papers.


Furthermore, we are in charge of multiple XVA implementations for derivative trading and risk controlling of financial institutions, from the first installation to subsequent enhancements.


The foundation of a future-proof XVA platform should in our opinion comprise of:

  • High-dimensional Monte-Carlo simulations incorporating all risk factors relevant to the portfolio
  • Capability to value the complete OTC-portfolio (including exotic products and less relevant asset classes using American Monte-Carlo or some fallback-approach/proxy)
  • Availability of a detailed and precise hierarchy of counterparties, netting agreements and collateral agreements (including warrants and physical collateral)
  • Adequate production capability of CVA, DVA and FVA under IFRS 13, ideally on a daily basis
  • Compute cost components like MVA and KVA and help the business to optimize hedging decisions (including central clearing vs. bilateral margining, collateral options, etc.)
  • Capability to periodically calculate XVA-sensitivities (e. g. to identify material impact factors on the balance sheet), ideally combined with an “XVA-explain” methodology
  • Mechanisms to support pre-deal pricing being automated in the front office process, additional mechanisms to produce “XVA-matrices” as quick reference for sales teams
  • User-definable ad-hoc calculations for analyzing what-if scenarios or options, e.g. the exercise of break clauses, support of negotiating novations, valuation of close-outs etc.
  • Include regulatory frameworks like IMM CCR / SA-CCR, FRTB-CVA, Leverage Ratio in order to monitor and manage the consumption and cost of capital

For a systematic overview on relevant XVA components, please refer to our recent white paper.


For further information or to schedule an appointment with our experts, please contact info@remove-this.d-fine.de.