Valuation: KVA and FVA - A new approach
Tuesday 22 September 2015 8h30 10h30
Intertwined with the CVA (Credit Valuation Adjustment) and developed to quantify costs of capital and debt financing, the KVA/FVA metrics are the object of a lively debate and standard setting process that is reshaping investment banking. In this talk, we review how banks can benefit from applying these metrics in a number of areas, including:
•Transferring of the costs of capital and debt financing to clients
•Remunerating capital at a given hurdle rate
•Managing sustainable dividend policies
•Designing non-overlapping risk capital charges for default risk, CVA/FVA volatility risk, model risk, etc
•Identifying stress scenarios with major impact on cost of funding
•Quantifying the capital consumption for trades and setting trading limits
•Setting up effective CVA/FVA hedges to reduce cost of capital
•Offer appealing opportunities to investors by means of structured credit trades with negative KVA/FVA
Claudio Albanese is a former academic with a doctoral degree from ETH Zurich and professorships at the University of Toronto and Imperial College. He currently leads Global Valuation, a vendor of XVA software-hardware solutions. He recently authored a number of articles in the XVA space which are attracting debate and media attention.
Moez Mrad will share its experience from a banking concrete perspective. He will provide an overview about modelling challenges that arise when computing MVA and KVA.