arxiv: 1211.1564 · v1 · pith:6ZYPCOISnew · submitted 2012-11-07 · 💱 q-fin.PR · q-fin.RM

Funded Bilateral Valuation Adjustment

Lorenzo Giada , Claudio Nordio This is my paper

classification 💱 q-fin.PR q-fin.RM

keywords adjustmentbilateralfundedvaluationcounterpartyadditionalarisingavoiding

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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.

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Funded Bilateral Valuation Adjustment

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