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A unified approach to xVA with CSA discounting and initial margin

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  • Francesca Biagini
  • Alessandro Gnoatto
  • Immacolata Oliva

Abstract

In this paper we extend the existing literature on xVA along three directions. First, we enhance current BSDE-based xVA frameworks to include initial margin in presence of defaults. Next, we solve the consistency problem that arises when the front-office desk of the bank uses trade-specific discount curves (CSA discounting) which differ from the discount rate adopted by the xVA desk. Finally, we clarify the impact of aggregation of several sub-portfolios of trades on the xVA-valuation of the resulting global portfolio and study related non-linearity effects.

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  • Francesca Biagini & Alessandro Gnoatto & Immacolata Oliva, 2019. "A unified approach to xVA with CSA discounting and initial margin," Papers 1905.11328, arXiv.org, revised Mar 2021.
    • Handle: RePEc:arx:papers:1905.11328
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    Cited by:

    1. Alessandro Gnoatto & Nicole Seiffert, 2020. "Cross Currency Valuation and Hedging in the Multiple Curve Framework," Working Papers 03/2020, University of Verona, Department of Economics.
    2. Antonelli, Fabio & Ramponi, Alessandro & Scarlatti, Sergio, 2022. "Approximate value adjustments for European claims," European Journal of Operational Research, Elsevier, vol. 300(3), pages 1149-1161.
    3. Callegaro, Giorgia & Gnoatto, Alessandro & Grasselli, Martino, 2023. "A fully quantization-based scheme for FBSDEs," Applied Mathematics and Computation, Elsevier, vol. 441(C).
    4. Damiano Brigo & Federico Graceffa & Alexander Kalinin, 2021. "Mild to classical solutions for XVA equations under stochastic volatility," Papers 2112.11808, arXiv.org.

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