The xVA Challenge

Since the global financial credit crisis unfolded in 2007, the importance of counterparty risk and related aspects such as collateral, funding and capital has become of paramount importance. The xVA Challenge offers a practical guide to counterparty risk, funding, collateral and capital aspects in OTC derivative markets. Written by Jon Gregory, one of the leading and influential practitioners in the field, this important resource includes information on the latest academic thinking, regulatory rules and market practice. Thoroughly revised and updated, the third edition contains an updated examination of the emergence of counterparty risk resulting from the global financial crisis and the subsequent regulations and guidelines developed to reduce counterparty risk, such as new capital charges, the central clearing mandate and bilateral rules for the posting of collateral. The impact of aspects such as IFRS 13 and Basel III are described in detail. Counterparty credit risk and related aspects, such as funding, collateral and capital characterised by the term xVA are key aspects for banks and end-users of OTC derivatives. This vital resource provides practical, in-depth guidance towards all aspects of xVA quantification and management. Gregory examines the various xVA components, including CVA (credit value adjustment), DVA (debt value adjustment), FVA (funding value adjustment, ColVA (collateral value adjustment) and KVA (capital value adjustment) and their interactions and overlaps. Other aspects, such as wrong-way risks, xVA management and hedging are discussed. The xVA Challenge: Counterparty Credit Risk, Funding, Collateral, and Capital provides expert perspective and real-world guidance for banks, financial institutions and other end-users of OTC derivatives and is an invaluable reference for practitioners, academics and students in the field.