Pricing of Counterparty Risk and Funding With CSA Discounting, Portfolio Effects and Initial Margin
42 Pages Posted: 12 Jun 2019 Last revised: 14 Apr 2020
Date Written: June 28, 2019
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: Suggested Citation