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Capital and Funding

Author

Listed:
  • Claudio Albanese

    (CASS Business School - London, UK)

  • Simone Caenazzo

    (LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - ENSIIE - CNRS - Centre National de la Recherche Scientifique)

  • Stéphane Crépey

    (LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - ENSIIE - CNRS - Centre National de la Recherche Scientifique)

Abstract

Banking operations are being rewired around XVA metrics quantifying market incompleteness. This paper focuses on the cost of funding of variation margin and the cost of capital, i.e. FVA and KVA. The two metrics are intertwined since economic capital is itself a source of funding. Accurate valuations require simulations of capital and funding costs. Motivated by Basel Pillar II, Solvency II and IFRS 4 Phase II, we propose a principled approach to accounting regulatory treatments for FVA and KVA.

Suggested Citation

  • Claudio Albanese & Simone Caenazzo & Stéphane Crépey, 2018. "Capital and Funding," Working Papers hal-01764401, HAL.
  • Handle: RePEc:hal:wpaper:hal-01764401
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01764401
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    File URL: https://hal.archives-ouvertes.fr/hal-01764401/document
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    References listed on IDEAS

    as
    1. Claudio Albanese & Simone Caenazzo & St'ephane Cr'epey, 2016. "Capital Valuation Adjustment and Funding Valuation Adjustment," Papers 1603.03012, arXiv.org.
    2. Andrew Green & Chris Kenyon, 2014. "KVA: Capital Valuation Adjustment," Papers 1405.0515, arXiv.org, revised Oct 2014.
    3. Claudio Albanese & Simone Caenazzo & Stéphane Crépey, 2016. "Capital Valuation Adjustment and Funding Valuation Adjustment," Working Papers hal-01285363, HAL.
    Full references (including those not matched with items on IDEAS)

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