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Corrected XVA Modelling Framework and Formulae for KVA and MVA

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  • Antti Vauhkonen

Abstract

We discuss and clarify the XVA modelling framework specified in the paper "MVA by replication and regression" (Risk Magazine, May 2015) for including bilateral credit risk and funding costs in derivative pricing, and in doing so we rectify two key errors in the valuation adjustments accounting for costs of capital and initial margin, and present corrected formulae for KVA and MVA.

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  • Antti Vauhkonen, 2018. "Corrected XVA Modelling Framework and Formulae for KVA and MVA," Papers 1807.10924, arXiv.org.
    • Handle: RePEc:arx:papers:1807.10924
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    1. Andrew Green & Chris Kenyon, 2014. "KVA: Capital Valuation Adjustment," Papers 1405.0515, arXiv.org, revised Oct 2014.
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