9 Pages Posted: 30 Apr 2021
Date Written: April 20, 2021
Debt Valuation Adjustment (DVA) is an adjustment to the measurement of derivative liabilities to reflect the own credit risk of the entity. Accounting DVA is a DVA to be recognised for accounting purpose and this paper proposes a methodology to price accounting DVA. In particular the authors utilise the hedging framework of Burgard and Kjaer (2011a, 2011b, 2013 and 2017) to price the accounting DVA by adopting a practical funding strategy. Further the proposed accounting DVA address the widely-acknowledged overlapping between DVA and FBA (Funding Benefit Adjustment). The main contribution of this paper is to bridge the gap between XVA from XVA desk perspective where there is no DVA and XVA from bank perspective that accounting DVA as part of exit price is required by accounting standards.
Keywords: DVA, Accounting, XVA, Debt Valuation Adjustment, FVA
JEL Classification: G10, G12
Suggested Citation: Suggested Citation