9 July 2018
As part of the Risk.net XVA Special Report 2018 Martin Engblom discusses the biggest concerns currently about how the industry manages XVA and ways the challenges can be resolved.
What are the biggest concerns currently about how the industry manages XVA?
Martin Engblom, triCalculate: The biggest concern in our view is inconsistency in approaches to XVA – which XVA should be charged, and in which situations? The emergence of margin valuation adjustment (MVA) over the past 12 months has brought this to light again after a period of more market standard approaches for credit valuation adjustment (CVA), debit valuation adjustment (DVA) and funding valuation adjustment (FVA).
XVA infrastructure also remains an issue. Large banks are still using in‑house builds that struggle with the capacity requirements of a modern XVA desk. Mid-tier banks are using legacy software solutions that are difficult to upgrade. Smaller banks and large corporates are relying on approximations and spreadsheet approaches that introduce inaccuracies and operational risk.
How difficult is it to make centralised XVA decisions with siloed trading desks?
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