There has been a growing emphasis on incorporating a wider range of valuation adjustments in the pricing of over-the-counter (OTC) derivatives. Legacy systems are being challenged by the shift beyond established measures like credit valuation adjustment (CVA), debt valuation adjustment (DVA), and funding valuation adjustment (FVA) to include a new class of xVAs.

To manage profit and loss (P&L) risks, it is necessary to measure xVA sensitivities throughout the lifespan of a trade, with billions of calculations conducted per day. The Basel Committee on Banking Supervision has also intensified its focus on CVA as a source of risk for banks and has expanded its CVA risk framework to include a new SA-CVA capital requirement as part of the post-Basel III reforms.

As a result, banks now need to ensure their infrastructure supportsthis new category of xVAs while meeting their reporting obligations, necessitating their measurement on a daily and intraday basis.

In this white paper, we present a collection of articles that shine a light on some of these challenges and offer insights on possible solutions.

White paper contents:

• Trading risks and a spotlight on XVA: Panel discussion from Risk Live Europe 2023
• Jump-at-Default Exposures with Physical Collateral
• Navigating the Challenges and Nuances of Hedging in SA-CVA
• Calculating KVA on FRTB SA-CVA Capital
• xVA Neural Net Engine - Machine Learning Accelerated xVA Simulations
• Improving XVA Accuracy with Empirical Martingale Simulation
• Impact of Stochastic Cross-Currency Basis Modeling on Initial Margin