by Dmitry Pugachevsky, Rohan Douglas (Quantifi) and Roman Bedau (Deloitte)
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. This whitepaper explores the different Fair Value Adjustments and valuation techniques under IFRS 13.