Funding, Liquidity, Credit and Counterparty Risk: Links and Implications

24 Pages Posted: 27 Jun 2011 Last revised: 20 Jul 2011

Date Written: May 20, 2011

Abstract

In this work we try and clarify what is the essence of the DVA: we believe we offer a robust conceptual framework to consistently included the DVA in the balance sheet of a financial institutions. Under this perspective, to our knowledge never proposed before, the DVA does not manifest any counterintuitive effects, such as a reduction of the current value of the liabilities of a counterparty when its creditworthiness worsens. On the other hand, the link between funding costs and dva will be easily identified and considered, and in this way we can also establish in a thorough fashion how to discount positive and negative future cash-flows.

Keywords: counterparty risk, CVA, DVA, funding, liquidity

JEL Classification: G13

Suggested Citation

Castagna, Antonio, Funding, Liquidity, Credit and Counterparty Risk: Links and Implications (May 20, 2011). Available at SSRN: https://ssrn.com/abstract=1855028 or http://dx.doi.org/10.2139/ssrn.1855028

Antonio Castagna (Contact Author)

Iason Ltd. ( email )

7th Floor, Hume House
Dublin, 4
Ireland

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
603
Abstract Views
3,487
Rank
82,296
PlumX Metrics