CVA and FVA with funding aware close outs

7 Pages Posted: 6 Oct 2012

See all articles by Christoph Burgard

Christoph Burgard

Bank of America - Bank of America Merrill Lynch

Mats Kjaer

Bloomberg L.P.

Date Written: October 5, 2012

Abstract

The claim on a derivative contract upon default of one of the counterparties depends on the way the close-out amount is determined. Whether or not this close-out amount includes the cost of funding affects the CVA and FVA. We specify how to calculate CVA and FVA under different funding cost dependent close-out rules

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

JEL Classification: G13

Suggested Citation

Burgard, Christoph and Kjaer, Mats, CVA and FVA with funding aware close outs (October 5, 2012). Available at SSRN: https://ssrn.com/abstract=2157631 or http://dx.doi.org/10.2139/ssrn.2157631

Christoph Burgard

Bank of America - Bank of America Merrill Lynch ( email )

London
United Kingdom

Mats Kjaer (Contact Author)

Bloomberg L.P. ( email )

39-45 Finsbury Square
City Gate House
London, EC2A 1PQ
United Kingdom

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