The changing landscape of derivatives trading in recent years has led to shrinking margins, greater volumes and higher capital costs associated with derivatives trading. In addition to calculating fair value, banks must now account for what many practitioners are calling ‘the XVAs’ (a term which includes CVA, DVA, FVA and other adjustments) to truly capture the costs of conducting derivatives business. As a result, the question of profitability within derivatives trading is in the spotlight. Understanding and holistically managing trade profitability with a complete understanding of the trade lifecycle is a critical need.

In this research paper, Satyam Kancharla, Numerix Senior Vice President and Chief Strategy Officer, discusses the concept of Trade EVA (Economic Value Added) along with other industry best practices for integrating risk into pre-trade analytics and looking at derivative trade profitability more holistically.

Highlights include:

  • The Changing Landscape of Trade Profitability
  • Examining the Tradeoff between Counterparty Risk and Funding Risk/Costs
  • EVA (Economic Value Added): A Brief Introduction
  • Trade EVA and the Development of a Trade Profitability Framework
  • EVA and the XVA Measures
  • Best Practices for Process Re-engineering and Implementation
  • Best Practices for Visualizing EVA

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About the Author:
Satyam Kancharla, SVP Client Solutions Group, Numerix

Mr. Kancharla is currently the head of Numerix’s Client Solutions Group, which is responsible for Product Management, Financial Engineering and Client Services. Prior to this, he has served in various roles in Quantitative Software Development, Financial Engineering and Pre-Sales at Numerix.

Before joining Numerix in New York, he was the CTO for Numerix Japan LLC in Tokyo, heading the Pre-Sales and Financial Engineering teams for Asia. Earlier in his career, Mr. Kancharla also worked with Merrill Lynch and GE Capital in Quantitative Finance and Product Development roles. He holds an MBA degree, an MSc degree in Applied Statistics and Informatics, a BSc in Mathematics and Computers, and CFA and FRM certifications.

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