Consistent XVA Metrics Part II: Multi-Currency

24 Pages Posted: 15 Mar 2017 Last revised: 10 Jun 2017

Date Written: May 10, 2017

Abstract

We present a consistent framework for computing shareholder and firm values of derivative portfolios in the presence of collateral, counterparty risk and funding costs in a multi-currency economy. The results extend the single currency economy results from Kjaer and the major difference is that the effective funding spreads now include cross currency basis spreads. This is a consequence of having to hedge the foreign exchange rate risks that arise from converting funding in one currency into collateral in another. The resulting valuation adjustments have been implemented in the forthcoming Bloomberg MARS XVA product.

Keywords: Shareholder and Firm Values, Valuation Adjustments, Counterparty Risk, Collateral, CSA Discounting, Cross Currency Basis Spreads, Bloomberg MARS XVA

JEL Classification: G13

Suggested Citation

Kjaer, Mats, Consistent XVA Metrics Part II: Multi-Currency (May 10, 2017). Available at SSRN: https://ssrn.com/abstract=2932338 or http://dx.doi.org/10.2139/ssrn.2932338

Mats Kjaer (Contact Author)

Bloomberg L.P. ( email )

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
305
Abstract Views
935
rank
125,110
PlumX Metrics