01/12/2015 | EIFR
In the aftermath of the crisis, banking operations are being rewired around metrics called KVA (Capital Value adjustment) and FVA (Funding Value Adjustment).
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.