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Valuing an Interest Rate Swap Portfolio with CVA, DVA, and FVA

In: Valuation in a World of CVA, DVA, and FVA A Tutorial on Debt Securities and Interest Rate Derivatives

Author

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  • Donald J Smith

Abstract

In the last few years, several large banks that are the major market makers in interest rate derivatives have included a funding valuation adjustment (FVA) in their financial statements. For example, when JP Morgan Chase first reported FVA in the 4th quarter 2013, it stated that this action was “reflecting an industry migration towards incorporating the cost or benefit of unsecured funding into valuations.” At the time it recognized a one-time loss of USD 1.5 billion related to FVA. The FVA can be positive or negative. Page 4 of the January 19, 2014 release for Deutsche Bank’s Corporate Banking and Securities group states: “Fourth quarter results were also affected by a EUR 110 million charge for Debt Valuation Adjustment (DVA), and a EUR 149 million charge for Credit Valuation Adjustment (CVA), which offset a gain of EUR 83 million for Funding Valuation Adjustment (FVA)”…

Suggested Citation

  • Donald J Smith, 2017. "Valuing an Interest Rate Swap Portfolio with CVA, DVA, and FVA," World Scientific Book Chapters, in: Valuation in a World of CVA, DVA, and FVA A Tutorial on Debt Securities and Interest Rate Derivatives, chapter 6, pages 137-161, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813222755_0006
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    More about this item

    Keywords

    XVA; CVA; DVA; FVA; Debt Securities; Interest Rate Derivatives;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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