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CVA Hedging, Default Arrangements and Implications for XVA Modeling

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

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  • Osamu Tsuchiya

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…

Suggested Citation

  • Osamu Tsuchiya, 2019. "CVA Hedging, Default Arrangements and Implications for XVA Modeling," World Scientific Book Chapters, in: A PRACTICAL APPROACH TO XVA The Evolution of Derivatives Valuation after the Financial Crisis, chapter 11, pages 199-207, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813272743_0011
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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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