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

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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.

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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.

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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.

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Plans & Membership

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Expert led content

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

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Engage with our video hotspots and knowledge check-ins

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Gain CPD / CPE credits and professional certification

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Build, scale and manage your organisation’s learning

Integrations

Connect Finance Unlocked to your current platform

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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.

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Introduction to XVA

Introduction to XVA

Steven Marshall

25 years: Derivatives trading

In the introductory video to this XVA series, Steven defines a wide range of acronyms. Some of which include: XVA, CVA, and DVA.

In the introductory video to this XVA series, Steven defines a wide range of acronyms. Some of which include: XVA, CVA, and DVA.

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Introduction to XVA

11 mins 25 secs

Key learning objectives:

  • Understand why we need to apply valuation adjustments when pricing derivatives

  • Define CVA, DVA, FVA and KVA

  • Understand how changes to financing, collateral agreements and capital rules led to the development of valuation adjustment

Overview:

Valuation Adjustments (or VAs) are adjustments taken when firms account for and price derivative transactions. In this video, Steven aims to demystify acronyms such as CVA, DVA and FVA, and what sort of things can impact the price of a derivative beyond the underlying mid-market valuation.

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Summary

What is XVA?

“XVA” isa term referring to how we adjust pricing on derivatives to take into account things such as credit exposure and financing costs.  XVA is the colloquial name for a whole collection of other acronyms - CVA, DVA, FVA, KVA just to name a few!

What is Credit Valuation Adjustment (CVA)?

Assume we are an institutional bank who provides derivative hedging solutions to their corporate clients; the credit quality of the corporate counterparty and the risk they may default will impact whether we receive all the payments on a derivative.  If the counterparty has a high risk of failing and we are due to receive payments under a derivative contract, then we need to provision against this in a similar way we might for a loan to a risky counterpart.  This is known as Credit Valuation Adjustment – or CVA.

What is Debit Valuation Adjustment (DVA)?

DVA  is the reverse of CVA and considers the bank itself may fail in its obligations to the corporate counterparty.  The bank’s DVA is the corporate counterparty’s CVA and the corporate counterparty’s DVA is the bank’s CVA.  In the example previously mentioned - the bank received fixed from the corporate client and rates moved lower - the DVA in this example would reduce as the spot and forward exposure the bank has to the corporate has reduced, making the corporate’s CVA, lower.

What is Funding Valuation Adjustment (FVA)?

The cost of financing derivative transactions due to different collateral requirements is called Funding Valuation Adjustment – or FVA.  It may arise because one contract requires daily variation margin posting - say with another bank - whereas an offsetting contract has no collateral – say with a corporate for instance.

What is Capital Valuation Adjustment (KVA)?

Firms need to ensure that they generate a reasonable return on equity for these new transactions and will consider how much additional capital they will have to hold on a new transaction over its life.  Taking these two things into consideration will enable them to estimate an appropriate mark-up to put on the trade to generate an adequate return.  This is referred to as KVA – Capital Valuation Adjustment.

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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.

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