Understanding and Pricing XVA 2018 | Marcus Evans | 1 March 2018 | Grand Copthorne Waterfront Hotel, 392 Havelock Rd, Singapore 169663

The Role of XVAs in Pricing OTC Derivatives - Understanding and Pricing XVA

Prior to the Global Financial Crisis, the pricing of OTC derivatives was based on some simple assumptions. A key presumption was that each counterparty was the same (more or less), regardless of how credit risk was mitigated the transaction was funded, or the capital treatment of the exposure. Counterparty defaults during the GFC made banks rethink how counterparty credit is mitigated and what that means in terms of pricing. OTC trades are now priced with different valuation adjustments that represent the cost of funding or hedging the real risks in trading. These adjustments are collectively known as the XVAs.

This course presents the main adjustments that are priced into OTC derivatives. These adjustments are CVA, DVA, FVA, LVA, COLVA, KVA and MVA. Each of these concepts are interlinked and present banks with an opportunity to position their derivative trading business to have optimal outcomes in terms of funding, credit and capital.

This course examines at the way the XVAs impact the pricing and management of OTC derivatives in banks today. It also takes a more detailed look at the way the different XVA adjustments are calculated and hedged.

Key Topics:
• Have a detailed examination at the different adjustments that are needed to be made to OTC derivatives to make a trade risk free
• Be familiar with the techniques used to price the XVA adjustments
• Be aware of the challenges that banks have when calculating the XVAs
• Appreciate the complexities when trying to hedge XVA risks
• Have a comprehension of how the XVAs interact with each other