Funded Bilateral Valuation Adjustment
Pricing of Securities
2012-11-08 v1 Risk Management
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.
Cite
@article{arxiv.1211.1564,
title = {Funded Bilateral Valuation Adjustment},
author = {Lorenzo Giada and Claudio Nordio},
journal= {arXiv preprint arXiv:1211.1564},
year = {2012}
}
Comments
10 pages, 3 figures