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Pricing Derivatives in the New Framework: OIS Discounting, CVA, DVA & FVA

Author

Listed:
  • García Muñoz, Luis Manuel
  • de Lope Contreras, Fernando
  • Palomar Burdeus, Juan Esteban

Abstract

As a byproduct of the 2007-2008 credit crunch, derivatives pricing and risk management are experiencing a dramatic transformation. Assumptions that were widely accepted not long ago, like absence of counterparty credit risk and the existence of a unique risk free curve available for every derivatives hedger in the derivatives replication process, are no longer accepted. Financial institutions are changing the way in which counterparty credit risk and funding risk are managed. We find ourselves in a world with multiple discounting curves for any given currency and with different adjustments to apply to the price of financial derivatives that seem difficult to hedge. The target of this book is to make a deep review of how these effects impact the derivatives valuation theory.

Suggested Citation

  • García Muñoz, Luis Manuel & de Lope Contreras, Fernando & Palomar Burdeus, Juan Esteban, 2015. "Pricing Derivatives in the New Framework: OIS Discounting, CVA, DVA & FVA," MPRA Paper 62086, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:62086
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Derivatives pricing; Collateral; OIS Discounting; CVA; DVA; FVA; Counterparty Credit Risk; Funding Risk;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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