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Article Dans Une Revue Quantitative Finance Année : 2021

XVA Analysis From the Balance Sheet

Résumé

XVAs denote various counterparty risk related valuation adjustments that are applied to financial derivatives since the 2007-09 crisis. We root a cost-of-capital XVA strategy in a balance sheet perspective which is key in identifying the economic meaning of the XVA terms. Our approach is first detailed in a static setup that is solved explicitly. It is then plugged in the dynamic and trade incremental context of a real derivative banking portfolio. The corresponding cost-of-capital XVA strategy ensures to bank shareholders a submartingale equity process corresponding to a target hurdle rate on their capital at risk, consistently between and throughout deals. Set on a forward/backward SDE formulation, this strategy can be solved efficiently using GPU computing combined with deep learning regression methods in a whole bank balance sheet context. A numerical case study emphasizes the workability and added value of the ensuing pathwise XVA computations.
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Dates et versions

hal-03910125 , version 1 (21-12-2022)

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  • HAL Id : hal-03910125 , version 1

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Claudio Albanese, Stéphane Crépey, Rodney Hoskinson, Bouazza Saadeddine. XVA Analysis From the Balance Sheet. Quantitative Finance, 2021. ⟨hal-03910125⟩
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