A unified approach to xVA with CSA discounting and initial margin
37 Pages Posted: 12 Jun 2019 Last revised: 3 Mar 2021
Date Written: March 3, 2021
In this paper we extend the existing literature on xVA along three directions. First, we enhance current BSDE-based xVA frameworks to include initial margin in presence of defaults. Next, we solve the consistency problem that arises when the front-office desk of the bank uses trade-specific discount curves (CSA discounting) which differ from the discount rate adopted by the xVA desk. Finally, we
clarify the impact of aggregation of several sub-portfolios of trades on the xVA-valuation of the resulting global portfolio and study related non-linearity effects.
Keywords: CVA, DVA, FVA, CollVA, xVA, EPE, PFE, Basel III, Collateral
JEL Classification: E43, G12.
Suggested Citation: Suggested Citation