FVA accounting, risk management and collateral trading

Albanese, Andersen and Iabichino present a method for accounting and risk managing FVAs

Frustrated man at the blackboard during a maths class

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The notion of charging for ‘funding costs'became painfully relevant for banks as their borrowing spreads jumped up during the financial crisis. Drawing inspiration from work by Piterbarg (2010) and Burgard & Kjaer (2011, 2013), several banks recently instituted accounting changes aimed at capturing the funding costs for uncollateralised derivatives transactions. The prevalent funding cost adjustment/funding benefit adjustment (FCA/FBA) accounting method is simple but