CVA Hedging, Default Arrangements and Implications for XVA Modeling

Osamu Tsuchiya

Chapter 11 in A Practical Approach to XVA:The Evolution of Derivatives Valuation after the Financial Crisis, 2019, pp 199-207 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Derivatives pricing has been based on the idealized world where arbitrage can be eliminated by locking in a payoff via other instruments. Among other things, this assumes the existence of deep markets where actions of a participant will not move the market, the ability to borrow and lend at the same rate, and that market variables are continuous. Whereas in practice, none of the above strictly hold, derivatives pricing still works in general because the above “approximately” holds…

Keywords: XVA; CVA; Valuation Adjustments; Counterparty Credit Risk; CCR; KVA; Regulatory Capital (search for similar items in EconPapers)
JEL-codes: C02 G01 (search for similar items in EconPapers)
Date: 2019
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