Abstract

http://ssrn.com/abstract=2027195
 
 

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Generalised CVA with Funding and Collateral via Semi-Replication


Christoph Burgard


Barclays Capital

Mats Kjaer


Barclays Investment Bank

December 6, 2012


Abstract:     
The economic value of derivatives depends on the funding costs encountered by the issuer. In this paper we derive general relations between the costs of running specific funding strategies while the issuer is alive and the resulting windfalls or shortfalls upon the issuer default. This gives rise to generalisations to the classical bilateral CVA adjustment that include the cost of running specific funding strategies and sets the stage to discuss ways to mitigate these effects. We give practical examples of different funding strategies and their resulting funding cost (FCA) and funding value adjustments (FVA).

Number of Pages in PDF File: 17

Keywords: Counterparty risk, CVA, FVA, Funding, Collateral, PDE, Feynman-Kac theorem

JEL Classification: G13

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Date posted: March 22, 2012 ; Last revised: August 20, 2013

Suggested Citation

Burgard, Christoph and Kjaer, Mats, Generalised CVA with Funding and Collateral via Semi-Replication (December 6, 2012). Available at SSRN: http://ssrn.com/abstract=2027195 or http://dx.doi.org/10.2139/ssrn.2027195

Contact Information

Christoph Burgard
Barclays Capital ( email )
5 The North Colonnade
Canary Wharf
London, E14 4BB
United Kingdom
Mats Kjaer (Contact Author)
Barclays Investment Bank ( email )
5 The North Colonnade
Canary Wharf
London, E14 4BB
United Kingdom
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