Funded Bilateral Valuation Adjustment

10 Pages Posted: 9 Nov 2012

Date Written: November 7, 2012

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.

Keywords: counterparty risk, credit valuation adjustment, funding valuation adjustment, bilateral valuation adjustment, debit valuation adjustment, CVA, FVA, DVA, Basel III, restructuring counterparty risk, ISDA, CSA, one way CSA

JEL Classification: G12, G13

Suggested Citation

Giada, Lorenzo and Nordio, Claudio, Funded Bilateral Valuation Adjustment (November 7, 2012). Available at SSRN: https://ssrn.com/abstract=2172338 or http://dx.doi.org/10.2139/ssrn.2172338

Lorenzo Giada

illimity Bank ( email )

Via Soperga 9
Milano
Italy

Claudio Nordio (Contact Author)

illimity bank ( email )

Milano
Italy

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