A Quantitative Look at FVA - Theory and Implementation
The practice of incorporating Funding Valuation Adjustment (FVA) into derivative prices has been hotly debated since the practice began in 2008. As bank funding costs began diverging significantly from risk-free discounting rates, clients received widely varying dealer prices for a specific derivative, reflecting differing funding costs between the banks and violating the law of one price. Despite the debate, many quantitative practitioners wish to incorporate FVA into their derivative valuations – but developing and implementing an accurate FVA framework can present significant theoretical and practical challenges.
On Thursday, February 28, 2013 Numerix held a quantitative discussion with Dr. Alexandre Antonov, Senior VP of Quantitative Research at Numerix, as he reviewed current FVA theory and outlined a new universal FVA framework.
Given informational, theoretical, numerical and practical issues related to the direct implementation of the framework, Dr. Antonov proposes an efficient approximation (which becomes exact for important special cases). The proposed approximation can be easily implemented, as it essentially just requires portfolio future prices (i.e. the same information as in CVA calculations).
Dr. Antonov covered:
- FVA theory framework
- Single rate classical models
- Multi-rate models for general accounts
- Theoretical and numerical issues
- Approximation
- Implementation
Featured Speakers
Dr. Alexandre Antonov
Dr. Antonov received his PhD degree from the Landau Institute for Theoretical Physics in 1997 and joined Numerix in 1998, where he currently works as a Senior Vice President of Quantitative Research. His activity is concentrated on modeling and numerical methods for interest rates, cross currency, hybrid, credit and CVA. Dr. Antonov is a published author for multiple publications in mathematical finance, including RISK magazine and a frequent speaker at financial conferences.
As Chief Marketing Officer and Executive Vice President of Global Marketing & Corporate Communications, James leads the company’s global marketing and corporate communications efforts, spanning a diverse set of solutions and audiences. He oversees integrated marketing communications to clients in the largest global financial markets and to the Numerix partner network through the company's branding, electronic marketing, research, events, public relations, advertising and relationship marketing.
Since joining Numerix in 2008, James has launched the organization’s award-winning thought leadership program, bringing to light challenges and insights from Numerix market experts. He also hosts the Numerix Video Blog, tackling the challenges pressing the derivatives markets—from regulatory issues to trading strategies.
Prior to joining Numerix, James served as Managing Director of Global Marketing and Communications for Fitch Ratings. During his tenure at Fitch, he built the firm’s public relations program, oversaw investor relations and led marketing and communications plans for several acquisitions. Prior to Fitch, James was a member of the communications team at Moody's Investors Service.
