Derivatives Funding, Netting and Accounting

11 Pages Posted: 1 Feb 2015 Last revised: 20 Mar 2017

See all articles by Christoph Burgard

Christoph Burgard

Bank of America - Bank of America Merrill Lynch

Mats Kjaer

Bloomberg L.P.

Date Written: March 20, 2017

Abstract

In this article we expand the semi-replication framework by Burgard and Kjaer to derivative books with multiple counterparties. We then find the funding strategy that corresponds to the recent funding value adjustment accounting proposal by Albanese and Andersen. This strategy is asymmetric and non-additive across counterparties. In contrast, funding strategies that recycle positive cash for other funding purposes enable symmetric funding strategies which also generates higher economic value than under the proposed asymmetric methodology.

Keywords: Derivatives, Funding, Netting, Accounting, FVA, XVA, DVA, CVA, FTP

JEL Classification: G13, G24, G32, G33, M41

Suggested Citation

Burgard, Christoph and Kjaer, Mats, Derivatives Funding, Netting and Accounting (March 20, 2017). Available at SSRN: https://ssrn.com/abstract=2534011 or http://dx.doi.org/10.2139/ssrn.2534011

Christoph Burgard (Contact Author)

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

London
United Kingdom

Mats Kjaer

Bloomberg L.P. ( email )

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

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