This blog is taken from the Quantifi webinar 'Next Generation Risk Technology Powered by Data Science’. In Part 2 of this blog explores how Quantifi is leveraging data science and summarises the key trends shaping data science practices within a trading and risk management context. Read More
In our previous article published in Total Derivatives (The impact of FVA on swaps - A primer) we introduced FVA - Funding Valuation Adjustment - and outlined different scenarios when it has to be calculated. We also demonstrated the role of wrong-way risk, including one arising from a correlation between the default risk of a bank and its counterparty. Here we describe the on-going industry debate on how to treat FVA – as a part of risk-neutral pricing or as an extra cost of a trade.
It has been reported in several industry publications (e.g. CreditFlux, Reuters, Derivatives Week Online) that the CDS market is likely to switch to a fixed coupon basis with upfront points. This change will lead to some fundamental changes in the risk profiles of these contracts. Understanding the implications of a switch to upfront contracts is going to be important in adjusting hedging strategies going forward. This is particularly true for strategies involving these contracts as hedges for default risk. This Learning Curve article will explore some of the most basic changes that participants in the credit markets will need to keep in mind.
Recent years have seen valuation adjustments take centre stage in the pricing and valuation of OTC derivatives. Costs and benefits arising from credit (CVA), debt (DVA), funding (FVA) and collateral (ColVA) have become critically important in defining the dynamics of OTC markets. Read More
Quantifi & Deloitte seminar, Frankfurt
“We have seen organisations struggle to incorporate CVA and DVA adjustments when performing hedge effectiveness testing. In some cases, CVA and DVA volatility has caused hedge ineffectiveness. It is critical for organisations to explore IFRS 13 compliant approaches that maximise hedge effectiveness.” Phillip van den Berg, Senior Manager, Deloitte read more
Interest on the topic of Funding Valuation Adjustment (FVA) was recently renewed, particularly in light of the JPMorgan’s (JPM) Q4 2013 earnings report on January 14th 2014, which for the first time included FVA. JPM, during the investor presentation, explained the adoption of FVA:
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The FOW Asia Awards are reviewed by a panel of judges, who recognise solution providers that have launched or made enhancements to existing products that solved a problem creatively, opened up new possibilities or changed the way participants approach the market. “Regulators are focussed on mitigating counterparty risk as a method of reducing systemic risk. Our judges agreed that Quantifi has developed a comprehensive platform that supports risk management underpinning several areas including central clearing commitments, Basel III calculations and hedging.” William Mitting, editor and publisher, FOW. “ read more
Co-hosted by: Quantifi & PRMIA. Date: 22nd May 2012. Location: British Bankers Association, Pinners Hall, 105-108 Old Broad Street, London, EC2N 1EX. Areas Covered: Measuring trade profitability with CVA, DVA and FVA; Challenges of Trading and Hedging CVA and DVA; Recent Developments in Modeling and Performance Optimization; Basel III and counterparty risk.... read more