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In the absence of a universally accepted procedure for the credit valuation adjustment (CVA) calculation, we compare a number of different bilateral counterparty valuation adjustment (BVA) formulas. First we investigate the impact of the choice of the closeout convention used in the formulas....
Persistent link: https://www.econbiz.de/10010575476
We compare two different bilateral counterparty valuation adjustment (BVA) formulas. The first formula is an approximation and is based on subtracting the two unilateral Credit Valuation Adjustment (CVA)'s formulas as seen from the two different parties in the transaction. This formula is only a...
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We illustrate a problem in the self-financing condition used in the papers "Funding beyond discounting: collateral agreements and derivatives pricing" (Risk Magazine, February 2010) and "Partial Differential Equation Representations of Derivatives with Counterparty Risk and Funding Costs" (The...
Persistent link: https://www.econbiz.de/10010599862
We present the derivation of the self-financing condition used in a derivative pricing framework with funding, collateral and discounting. This is done in a way that clarifies the structure of the relevant funding accounts. This clarification is achieved by properly distinguishing between price...
Persistent link: https://www.econbiz.de/10011279123
This paper specializes a number of earlier contributions to the theory of valuation of financial products in presence of credit risk, repurchase agreements and funding costs. Earlier works, including our own, pointed to the need of tools such as Backward Stochastic Differential Equations (BSDEs)...
Persistent link: https://www.econbiz.de/10012998683
We illustrate a problem in the self-financing condition used in the papers "Funding beyond discounting: collateral agreements and derivatives pricing" (Risk Magazine, February 2010) and "Partial Differential Equation Representations of Derivatives with Counterparty Risk and Funding Costs" (The...
Persistent link: https://www.econbiz.de/10013103949
We develop a unified valuation theory that incorporates credit risk (defaults), collateralization and funding costs, by expanding the replication approach to a generality that has not yet been studied previously and reaching valuation when replication is not assumed. This unifying theoretical...
Persistent link: https://www.econbiz.de/10012926351
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