mark-to-market (MTM)

CVA, DVA and Hedging Earnings Volatility

Monday, January 25, 2016

by Dmitry Pugachevsky, Quantifi

Accounting rules mandate the inclusion of CVA in MTM reporting, which means bank earnings are subject to CVA volatility. DVA is also accepted under the accounting rules and banks that include it, and by doing so must continue to include it going forward, add their own credit spread as a source of earnings volatility. The whitepaper provides an overview of DVA and highlights some of the results reported by larger banks, along with potential implications going forward.