The xVA Challenge, Fourth Edition, Counterparty Risk, Funding, Collateral, Capital and Initial Margin by Jon Gregory -- Read -- Imperial Library of Trantor

Index

Cover Table of Contents List of Spreadsheets List of Appendices Acknowledgements About the Author Section 1: Basics

1 Introduction 2 Derivatives

2.1 INTRODUCTION 2.2 THE DERIVATIVES MARKET 2.3 DERIVATIVE RISKS 2.4 SYSTEMIC RISK OF DERIVATIVES 2.5 THE GLOBAL FINANCIAL CRISIS AND CENTRAL CLEARING OF OTC DERIVATIVES 2.6 DERIVATIVES RISK MODELLING NOTES

3 Counterparty Risk and Beyond

3.1 COUNTERPARTY RISK 3.2 BEYOND COUNTERPARTY RISK 3.3 COMPONENTS OF XVA NOTES

4 Regulation

4.1 REGULATION AND THE GLOBAL FINANCIAL CRISIS 4.2 CAPITAL REQUIREMENTS 4.3 LIQUIDITY 4.4 CLEARING AND MARGINING NOTES

5 What is xVA?

5.1 OVERVIEW 5.2 ANALYSIS OF XVA 5.3 VALUATION 5.4 PRICING NOTES

Section 2: Risk Mitigation

6 Netting, Close-Out, and Related Aspects

6.1 OVERVIEW 6.2 CASH FLOW NETTING 6.3 VALUE NETTING 6.4 THE IMPACT OF NETTING NOTES

7 Margin (Collateral) and Settlement

7.1 TERMINATION AND RESET FEATURES 7.2 BASICS OF MARGIN/COLLATERAL 7.3 MARGIN TERMS 7.4 BILATERAL MARGIN REQUIREMENTS 7.5 IMPACT OF MARGIN 7.6 MARGIN AND FUNDING NOTES

8 Central Clearing

8.1 EVOLUTION OF CENTRAL CLEARING 8.2 MECHANICS OF CENTRAL CLEARING 8.3 CCP RISK MANAGEMENT 8.4 INITIAL MARGIN AND DEFAULT FUNDS 8.5 IMPACT OF CENTRAL CLEARING NOTES

9 Initial Margin Methodologies

9.1 ROLE OF INITIAL MARGIN 9.2 INITIAL MARGIN APPROACHES 9.3 HISTORICAL SIMULATION 9.4 BILATERAL MARGIN AND SIMM NOTES

10 The Impact and Risk of Clearing and Margining

10.1 RISKS OF CENTRAL CLEARING 10.2 ANALYSIS OF A CCP LOSS STRUCTURE 10.3 IMPACT OF MARGIN NOTES

Section 3: Building Blocks

11 Future Value and Exposure

11.1 CREDIT EXPOSURE 11.2 DRIVERS OF EXPOSURE 11.3 AGGREGATION, PORTFOLIO EFFECTS, AND THE IMPACT OF COLLATERALISATION 11.4 FUNDING, REHYPOTHECATION, AND SEGREGATION NOTES

12 Credit Spreads, Default Probabilities, and LGDs

12.1 DEFAULT PROBABILITY 12.2 CREDIT CURVE MAPPING 12.3 GENERIC CURVE CONSTRUCTION NOTES

13 Regulatory Methodologies

13.1 OVERVIEW 13.2 CREDIT RISK (DEFAULT RISK) CAPITAL 13.2 CVA (MARKET RISK) CAPITAL 13.4 EXPOSURE CALCULATION METHODOLOGIES 13.5 EXAMPLES 13.6 CENTRAL COUNTERPARTY CAPITAL REQUIREMENTS NOTES

14 Funding, Margin, and Capital Costs

14.1 BANK FINANCING 14.2 CAPITAL 14.3 FUNDING NOTES

15 Quantifying Exposure

15.1 METHODS FOR QUANTIFYING EXPOSURE 15.2 EXPOSURE ALLOCATION 15.3 MONTE CARLO METHODOLOGY 15.4 CHOICE OF MODELS 15.5 MODELLING MARGIN (COLLATERAL) 15.6 EXAMPLES NOTES

Section 4: The xVAs

16 The Starting Point and Discounting

16.1 THE STARTING POINT 16.2 COLVA AND DISCOUNTING 16.3 BEYOND PERFECT COLLATERALISATION – XVA NOTES

17 CVA

17.1 OVERVIEW 17.2 CREDIT VALUE ADJUSTMENT 17.3 DEBT VALUE ADJUSTMENT 17.4 CVA ALLOCATION 17.5 IMPACT OF MARGIN 17.6 WRONG-WAY RISK NOTES

18 FVA

18.1 OVERVIEW 18.2 FVA AND DISCOUNTING 18.3 ASYMMETRIC FVA NOTES

19 KVA

19.1 OVERVIEW 19.2 CAPITAL VALUE ADJUSTMENT (KVA) 19.3 MANAGEMENT OF KVA 19.4 KVA OVERLAPS NOTES

20 MVA

20.1 OVERVIEW 20.2 INITIAL MARGIN FUNDING COSTS 20.3 MVA 20.4 LINK TO KVA NOTES

21 Actively Managing xVA and the Role of an xVA Desk

21.1 THE ROLE OF AN XVA DESK 21.2 HEDGING 21.3 OPERATION OF AN XVA DESK NOTES

Glossary References Index End User License Agreement