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Funded Bilateral Valuation Adjustment

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  • Lorenzo Giada
  • Claudio Nordio
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    Abstract

    We show how the cost of funding the collateral in a particular set up can be equal to the Bilateral Valuation Adjustment with the "funded" probability of default, leading to the definition of a Funded Bilateral Valuation Adjustment (FBVA). That set up can also be viewed by an investor as an effective way to restructure the counterparty risk arising from an uncollateralized transaction with a counterparty, mitigating or even avoiding entirely the additional capital charge introduced by the new Basel III framework.

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    File URL: http://arxiv.org/pdf/1211.1564
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1211.1564.

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    Date of creation: Nov 2012
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    Handle: RePEc:arx:papers:1211.1564

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    Web page: http://arxiv.org/

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    1. Andrea Pallavicini & Daniele Perini & Damiano Brigo, 2012. "Funding, Collateral and Hedging: uncovering the mechanics and the subtleties of funding valuation adjustments," Papers 1210.3811, arXiv.org, revised Dec 2012.
    2. Damiano Brigo & Cristin Buescu & Massimo Morini, 2011. "Impact of the first to default time on Bilateral CVA," Papers 1106.3496, arXiv.org.
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