C. Burgard, M. Kjaer. In the balance, Risk, November, 72-75, 2011.
12 Pages Posted: 19 Mar 2011 Last revised: 7 Aug 2014
Date Written: March 14, 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.
Keywords: Derivative funding cost adjustment, CVA, Central funding unit, Balance sheet management
JEL Classification: G13, G24, G32
Suggested Citation: Suggested Citation
Burgard, Christoph and Kjaer, Mats, In the Balance (March 14, 2011). C. Burgard, M. Kjaer. In the balance, Risk, November, 72-75, 2011.. Available at SSRN: https://ssrn.com/abstract=1785262 or http://dx.doi.org/10.2139/ssrn.1785262