XVA Best Practices: Regulatory Drivers, Analytical Challenges & Techniques for Recapturing Profitability

Valuation adjustments are nothing new to the capital markets, though the steady roll out of new regulations has banks always at the ready to adapt to their ever changing and increasingly onerous impacts on balance sheets. Initially this was responding to just a handful of adjustments, however the rapidly increasing number and impact of these XVA adjustments has resulted in billions of dollars of losses across the industry according to a recent Risk Magazine article.

The myriad of adjustments and hits to profitability drove the industry to begin thinking about these adjustments more holistically, delving into their relationships and their overall impact on not only the profitability of an individual trade but across the balance sheet. And the necessity to compute the capital required to support them throughout the life of the trade, has significantly increased the computational complexity, not to mention further demands for all of this information to be calculated in real time.

Substantial efforts are currently expended by market participants to provide an improved and holistic analytical framework for XVA, to improve the efficiency of the massive computational effort required for the analysis, and to implement the framework necessary to support internal management and regulatory demands (Basel, FRTB, etc.). And some market participants have taken it beyond simply mastering calculation and meeting regulatory demands to optimization techniques targeted at reversing losses and capturing increased profitability.

On March 9, 2016, featured speaker, Dr. Victor Masch Vice President of Global Strategy at Numerix, reviewed the state of the XVA ecosystem, their impacts on profitability, and offered insights into efficient ways to incorporate XVA into the management processes.

Dr. Masch addressed the following:

  • Definition of XVA categories and discussion of their evolution and relationships
  • Drivers of XVA Adoption and Adaptation
  • Several case studies, including:
    • Incorporation of XVA into risk-adjusted performance analysis
    • Status of regulatory requirements
    • Role of the Bank XVA Desk
  • Current issues and some ideas on their resolution
  • Emerging issues
  • Best practice analytical approaches for these computationally complex problems

Featured Speakers


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