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Pricing of counterparty risk and funding with CSA discounting, portfolio effects and initial margin

Francesca Biagini, Alessandro Gnoatto and Immacolata Oliva

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Abstract: 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 Cr\'epey (2015a) and Cr\'epey (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.

Date: 2019-05, Revised 2019-06
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http://arxiv.org/pdf/1905.11328 Latest version (application/pdf)

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Working Paper: Pricing of counterparty risk and funding with CSA discounting, portfolio effects and initial margin (2019) Downloads
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