Debt

Costs of capital under credit risk

In cost-of-capital computations, credit risk is only taken into consideration at the level of the debt beta approach. We show that applications of the debt beta approach in company valuation suffer from unrealistic assumptions about the market index and…

The theoretical foundations of XVAs

Bloomberg analyses the theoretical basis of XVAs, focusing on the works and findings of its head of quantitative XVA analytics, Mats Kjaer, who emphasises the role of the capital valuation adjustment as a major driver of derivatives trading profitability…