Liability-side pricing of swaps

Wujiang Lou presents a framework to compute recursive CVA and FVA via Monte Carlo simulation

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A common theme when introducing the funding valuation adjustment (FVA) is to consider an uncollateralised customer swap back-to-back with a fully collateralised or central counterparty (CCP) cleared swap. The CCP swap is of the exact terms and notional as the customer swap, so that the net economics would be a loan linked to swap mark-to-market. A bank, for instance, has to post cash or cash-like collateral to the CCP when the customer swap is in-the-money (ITM), and incurs funding cost that has

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