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Margin Valuation Adjustment (MVA)

In: A PRACTICAL APPROACH TO XVA The Evolution of Derivatives Valuation after the Financial Crisis

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  • Osamu Tsuchiya

Abstract

In Chapters 3 and 4, we have discussed about FVA. FVA is the funding cost related to derivatives trading. Here, funding is necessary for collateral margin and/or cash flows from derivatives. Collateral margin here is (a function of) exposure of derivatives. This collateral margin is called Variation Margin (VM). In addition, there are certain important circumstances where Initial Margin (IM) is posted on top of VM in derivative trading. VM protects derivative counterparties from loss with the amount of positive exposure when the opposite counterparty defaults. On the other hand, IM protects counterparties from potential losses from market movements in the Margin Period of Risk (MPOR) (i.e. the short period of time required for margin to be posted in response to market moves). MPOR is well captured by VAR, SVAR or Expected Shortfall…

Suggested Citation

  • Osamu Tsuchiya, 2019. "Margin Valuation Adjustment (MVA)," World Scientific Book Chapters, in: A PRACTICAL APPROACH TO XVA The Evolution of Derivatives Valuation after the Financial Crisis, chapter 6, pages 99-109, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813272743_0006
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    More about this item

    Keywords

    XVA; CVA; Valuation Adjustments; Counterparty Credit Risk; CCR; KVA; Regulatory Capital;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G01 - Financial Economics - - General - - - Financial Crises

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