Featured Pathways

More pathways

Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

More pathways

Book a demo

Pricing

Ready to get started?

Plans & Membership

Our Platform

Expert led content

+1,000 expert presented, on-demand video modules

Learning analytics

Keep track of learning progress with our comprehensive data

Interactive learning

Engage with our video hotspots and knowledge check-ins

Testing & certification

Gain CPD / CPE credits and professional certification

Managed learning

Build, scale and manage your organisation’s learning

Integrations

Connect Finance Unlocked to your current platform

Featured Content

More featured content

Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

More featured content

Book a demo

Pricing

Ready to get started?

Featured Pathways

More pathways

Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

More pathways

Book a demo

Pricing

Ready to get started?

Plans & Membership

Our Platform

Expert led content

+1,000 expert presented, on-demand video modules

Learning analytics

Keep track of learning progress with our comprehensive data

Interactive learning

Engage with our video hotspots and knowledge check-ins

Testing & certification

Gain CPD / CPE credits and professional certification

Managed learning

Build, scale and manage your organisation’s learning

Integrations

Connect Finance Unlocked to your current platform

Featured Content

More featured content

Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

More featured content

Book a demo

Pricing

Ready to get started?

Book a demo

Pricing

Ready to get started?

Introduction to CVA

Introduction to CVA

Steven Marshall

25 years: Derivatives trading

In his previous video, Steven discussed several different valuation adjustments which are taken into account to adjust the value of derivative trades to consider exposures such as credit, funding, and capital. In this video, he focuses on the first of these, credit, and the relevant adjustments; CVA and DVA.

In his previous video, Steven discussed several different valuation adjustments which are taken into account to adjust the value of derivative trades to consider exposures such as credit, funding, and capital. In this video, he focuses on the first of these, credit, and the relevant adjustments; CVA and DVA.

Subscribe to watch

Access this and all of the content on our platform by signing up for a 7-day free trial.

Introduction to CVA

13 mins 39 secs

Key learning objectives:

  • Define Credit Valuation Adjustment

  • Understand how the CVA is determined

  • Outline the main drivers of CVA

  • Define the Debit Valuation Adjustment

Overview:

It's no surprise that CVA has become one of the most debated topics in financial derivatives during the last decade. CVA is typically driven by finance departments, as financial accounting standards now require CVA to be reported in financial statements as a matter of course.

Subscribe to watch

Access this and all of the content on our platform by signing up for a 7-day free trial.

Summary

What is Credit Valuation Adjustment?

The fair value adjustment which measures the value of the expected credit loss on a derivative transaction.

Financial regulators and accounting companies gradually began to accept CVA as a required adjustment to assess the fair value of a trade, and CVA has become a crucial component in the valuation of a derivative over the last decade.

How is CVA determined?

CVA is the expected value of counterparty credit losses on a derivative.

“Expected value” has a mathematical definition, which is taking all future possible outcomes, multiplying them by the probability each outcome occurs, and then summing them all together.

What are the main drivers of CVA?

  • The credit worthiness of the counterparty.
  • The present value of the underlying derivative, and the expected profile of the derivative.
  • Trades with a longer maturity will result in a larger CVA.

What is the role of the ISDA Master Agreement?

Normally derivative transactions are transacted under a legal agreement called an ISDA Master Agreement. This legal framework allows for trade netting, which means that if we owe money on one transaction and are owed money by the same party on another, we can net these off when calculating what is owed in the event of bankruptcy.

This can complicate the calculation of CVA because we may need to consider netting thousands or tens of thousands of transactions. To calculate the CVA of the entire portfolio, we must compute the value of all of these transactions over time.

What is Debit Valuation Adjustment?

An asset on the balance sheet which adjusts the value of a derivative portfolio to take into account a firm's own credit risk, and the probability that they may default. Accounting-wise, it can be viewed as the contra entry for the counterparty's CVA reserve against you.

Its use is viewed as somewhat problematic because it is an asset that gains in value when the firm's credit worthiness decreases and is not "real" in the same sense that cash in the bank is.

Subscribe to watch

Access this and all of the content on our platform by signing up for a 7-day free trial.

Steven Marshall

Steven Marshall

Steven Marshall has over 25 years of experience in Global Markets and Investment Banking trading both interest and credit derivatives, most recently running the Global Business Resource Management Team at Nomura International. Steven is now the CEO and co-founder of RegRisk Technology where he provides innovative technology solutions to aid with regulatory compliance at financial firms and is currently providing XVA consultancy services via Tensilo Limited.

There are no available Videos from "Steven Marshall"