Funding is a cost to trading desks that they see as an input. Current FVA-related literature reflects this by also taking funding costs as an input, usually constant, and always risk-neutral. However, this funding curve is the output from a Treasury point of view. Treasury must consider Regulatory-required liquidity buffers, and both risk-neutral (Q) and physical measures (P). We describe the Treasury funding problem and optimize against both measures, using the Regulatory requirement as a constraint. We develop theoretically optimal strategies for Q and P, then demonstrate a combined approach in four markets (USD, JPY, EUR, GBP). Since we deal with physical measures we develop appropriate statistical tests, and demonstrate highly significant (p
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- N. Lesca, 2011. "Introduction," Post-Print halshs-00640604, HAL.
- Andrea Pallavicini & Damiano Brigo, 2013. "Interest-Rate Modelling in Collateralized Markets: Multiple curves, credit-liquidity effects, CCPs," Papers 1304.1397, arXiv.org.
- Arturo Estrella & Mary R. Trubin, 2006. "The yield curve as a leading indicator: some practical issues," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 12(Jul).
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