Pricing Swaps Including Funding Costs
July 28, 2011
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.
Number of Pages in PDF File: 19
Keywords: funding, liquidity, DVA, credit spread, funding value adjustment, FVA
JEL Classification: G13
Date posted: July 31, 2011 ; Last revised: January 31, 2012