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Pricing Swaps Including Funding Costs

19 Pages Posted: 31 Jul 2011 Last revised: 31 Jan 2012

Antonio Castagna

Iason Ltd.

Date Written: July 28, 2011

Abstract

In this paper we study how to include funding costs into the pricing of interest rate swaps and we show how they affect the value of the swap via a Funding Value Adjustment (FVA), in analogy with the Credit Value Adjustment (CVA) and the DVA. We consider the pricing of swap contracts with no collateral agreement or any other form of credit risk mitigations.

Keywords: funding, liquidity, DVA, credit spread, funding value adjustment, FVA

JEL Classification: G13

Suggested Citation

Castagna, Antonio, Pricing Swaps Including Funding Costs (July 28, 2011). Available at SSRN: https://ssrn.com/abstract=1898950 or http://dx.doi.org/10.2139/ssrn.1898950

Antonio Castagna (Contact Author)

Iason Ltd. ( email )

7th Floor, Hume House
Dublin, 4
Ireland

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