Pricing of Counterparty Risk and Funding With CSA Discounting, Portfolio Effects and Initial Margin

39 Pages Posted: 12 Jun 2019 Last revised: 30 Jun 2019

See all articles by Francesca Biagini

Francesca Biagini

University of Bologna - Department of Mathematics

Alessandro Gnoatto

University of Verona - Department of Economics

Immacolata Oliva

University of Verona - Department of Computer Science

Date Written: June 28, 2019

Abstract

In this paper we extend the existing literature on xVA along three directions. First, we extend existing BSDE-based xVA frameworks to include initial margin by following the approach of Crépey (2015a) and Crépey (2015b). Next, we solve the consistency problem that arises when the front- office desk of the bank uses trade-specific discount curves that differ from the discount curve adopted by the xVA desk. Finally, we address the existence of multiple aggregation levels for contingent claims in the portfolio between the bank and the counterparty by providing suitable extensions of our proposed single-claim xVA framework.

Keywords: CVA, DVA, FVA, CollVA, xVA, EPE, PFE, Basel III, Collateral

JEL Classification: E43, G12.

Suggested Citation

Biagini, Francesca and Gnoatto, Alessandro and Oliva, Immacolata, Pricing of Counterparty Risk and Funding With CSA Discounting, Portfolio Effects and Initial Margin (June 28, 2019). Available at SSRN: https://ssrn.com/abstract=3394928 or http://dx.doi.org/10.2139/ssrn.3394928

Francesca Biagini

University of Bologna - Department of Mathematics ( email )

Piazzadi Porta San Donato, 5
Bologna, 40126
Italy

Alessandro Gnoatto (Contact Author)

University of Verona - Department of Economics ( email )

Via dell'Artigliere, 8
37129 Verona
Italy

Immacolata Oliva

University of Verona - Department of Computer Science ( email )

Strada le Grazie, 15
Verona, 37134
Italy

Register to save articles to
your library

Register

Paper statistics

Downloads
23
Abstract Views
183
PlumX Metrics