Deloitte and Quantifi Explore the Different Fair Value Adjustments and Valuation Techniques under IFRS 13
Explore the Challenges and Implications of Measuring Financial Instruments under IFRS13. Review the Risk Factors and Requirements for Calculating CVA, DVA and FVA (XVA).
7 Aug, 2014

Quantifi, a specialist provider of analytics, trading and risk management solutions recently co-hosted a webinar with Deloitte, a world-wide expert provider of audit, consulting, financial advisory, risk management, tax and related services, on ‘IFRS 13, Accounting for CVA and DVA’ and have today published a supporting joint whitepaper.

IFRS13 has significant implications for all firms, including corporates that measure financial assets at fair value. With the introduction of IFRS 13, the requirements for calculating complex variables including CVA and DVA remain. According to IFRS 13, model-based fair value measurements have to take into account all risk factors that market participants would consider, including credit risk. In order to reflect the credit risk of the counterparty in an OTC-derivative transaction, an adjustment of its valuation has to be made. Therefore, depending on the type of derivative, not only does the market value of the counterparty’s credit risk (CVA) need to be taken into account, but also the company’s own credit risk (debit valuation adjustment – DVA) has to be considered in order to calculate the correct fair value.

“Bilateral CVA adjusts the fair value to account for expected losses that result from the default of the counterparty and the company itself. A comprehensive evaluation of bilateral CVA needs to take into account the time dependent dynamics of the derivatives’ market values as well as an estimate for the probability of default of both contractual partners.”

Roman Bedau, Consultant at Deloitte

Roman Bedau, Consultant at Deloitte, emphasises that “Bilateral CVA adjusts the fair value to account for expected losses that result from the default of the counterparty and the company itself. A comprehensive evaluation of bilateral CVA needs to take into account the time dependent dynamics of the derivatives’ market values as well as an estimate for the probability of default of both contractual partners. Potential correlations between both aspects should be factored into the model too.”

Dmitry Pugachevsky, Director of Research, Quantifi comments “For consistent, accurate calculation of CVA, DVA, including sensitivities, the ideal method for simulation of risk is the full-revaluation Monte Carlo model. The underlying simulation engine needs to be extremely efficient, powerful enough to support even the largest, most complex portfolios and allow for pre-trade profitability analysis. Risk factors, for example volatilities, become very important for XVA evaluation, even if they are not part of trade valuation.”

The webinar and supporting whitepaper, available at www.quantifisolutions.com, explore the challenges, risk factors, calculation techniques, and concepts for measuring financial instruments under IFRS 13.

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Deloitte and Quantifi Whitepaper Examines IFRS13 – CVA, DVA and the Implications for Hedge Accounting

Quantifi and Deloitte, a world-wide expert provider of audit, consulting, financial advisory, risk management, tax and related services, recently co-presented a webinar on ‘IFRS13 – CVA, DVA and the Implications for Hedge Accounting’, and have published a supporting joint whitepaper.

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