In the Balance
Barclays Investment Bank
March 14, 2011
C. Burgard, M. Kjaer. In the balance, Risk, November, 72-75, 2011.
Funding costs and counterparty credit risk adjustments have become increasingly important contributions to the total value of derivatives positions. Based on a recently developed derivatives pricing framework that incorporates these two effects in a unified way, we discuss the relationship of the funding cost adjustment to the balance sheet. We also demonstrate two ways in which the funding cost adjustment can be eliminated, resulting in symmetric derivatives values.
Number of Pages in PDF File: 12
Keywords: Derivative funding cost adjustment, CVA, Central funding unit, Balance sheet management
JEL Classification: G13, G24, G32
Date posted: March 19, 2011 ; Last revised: August 7, 2014
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