The fundamental representation of pricing adjustments

Benedict Burnett, Ryan McCrickerd and Benjamin Piau

Papers from arXiv.org

Abstract: This article consolidates and extends past work on derivative pricing adjustments, including XVA, by providing an encapsulating representation of the adjustment between any two derivative pricing functions, within an Ito SDE/parabolic PDE framework. We give examples of this representation encapsulating others from the past 20 years, ranging from a well known option pricing adjustment introduced by Gatheral, to the collection of semi-replication XVA originating from Burgard & Kjaer. We show that this fundamental representation can be applied to quantify and mitigate XVA model risk, providing a novel approach to estimating CVA wrong-way risk as an example application.

Date: 2025-03, Revised 2026-07
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Citations: View citations in EconPapers (1)

Published in Risk, July 2026

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