In its latest margin survey, ISDA reported that Initial Margin (IM) collected by the top 20 firms increased by 22% to $130.6 billion at the end of 2017.
IM requirements are impactful, owing to the associated funding costs. This is the role of Margin Valuation Adjustment (MVA), which represents the cost of funding IM requirements over the life of a trade, or of a portfolio.
Up until now the focus of MVA has been primarily on the client trade. However, from a bank perspective, servicing clients can require posting IM for client trades, and for their hedges.
On November 7th, Risk.net Contributing Editor, Philip Harding and Numerix Director of Quantitative Research, Andrew McClelland, Ph.D., explored these concepts, identifying how IM requirements arise from client trades and the hedge trades they necessitate, with the aim of accurately determining the total MVA impact of the trade to the bank.
Andrew McClelland, Ph.D., Director, Quantitative Research, Numerix
Andrew McClelland's work at Numerix focuses on counterparty credit risk issues including valuation adjustments and counterparty exposure production for structured products. He also works on numerical methods for efficient production of risk profiles under real-world measures.
Andrew received his Ph.D. in finance at the Queensland University of Technology in financial econometrics. His research involved markets exhibiting crash feedback, option pricing, and parameter estimation using particle filtering methods. His work has been published in the Journal of Banking and Finance, the Journal of Econometrics, and the Journal of Business and Economic Statistics.
Moderator: Philip Harding, Contributing Editor, Risk.net
Mr. Harding recently joined Risk.net to lead the development of content and thought leadership programmes and initiatives working with specialist brands as part of the marketing solutions team. An experienced financial and B2B publisher and editor, he has worked with leading brands across sectors covering risk management, insurance, pensions, investments and banking.
Oneview XVA - Manage Counterparty Credit Risk Across the Institution – In Real-Time