A unified approach to xVA with CSA discounting and initial margin

37 Pages Posted: 12 Jun 2019 Last revised: 3 Mar 2021

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: March 3, 2021

Abstract

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

Biagini, Francesca and Gnoatto, Alessandro and Oliva, Immacolata, A unified approach to xVA with CSA discounting and initial margin (March 3, 2021). 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

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