Author:
ANDERSEN LEIF,DUFFIE DARRELL,SONG YANG
Abstract
ABSTRACTIn this paper, we demonstrate that the funding value adjustments (FVAs) of major dealers are debt overhang costs to their shareholders. To maximize shareholder value, dealer quotations therefore adjust for FVAs. Our case studies include interest‐rate swap FVAs and violations of covered interest parity. Contrary to current valuation practice, FVAs are not themselves components of the market values of the positions being financed. Current dealer practice does, however, align incentives between trading desks and shareholders. We also establish a pecking order for preferred asset financing strategies and provide a new interpretation of the standard debit value adjustment.
Reference56 articles.
1. Financial Intermediaries and the Cross‐Section of Asset Returns
2. Albanese Claudio andLeifAndersen 2014 Accounting for OTC derivatives: Funding adjustments and the re‐hypothecation option Working paper Cass School of Business.
3. Albanese Claudio LeifAndersen andStefanoIabichino 2015 FVA accounting risk management and collateral trading Risk Magazine February 64–69.
4. Basel Committee on Banking Supervision 2013 Margin requirements for non‐centrally cleared derivatives Basel Committee on Banking Supervision and Board of the International Organization of Securities Commissions. Available athttp://www.bis.org/publ/bcbs261.pdf.
5. Becker Lukas BAML and Morgan Stanley take FVA losses Risk.net January 22 2015. Available athttps://www.risk.net/risk-management/2390522/baml-takes-497m-fva-loss.
Cited by
150 articles.
订阅此论文施引文献
订阅此论文施引文献，注册后可以免费订阅5篇论文的施引文献，订阅后可以查看论文全部施引文献