FVA and electricity bill valuation adjustment - much of a difference?

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Title: FVA and electricity bill valuation adjustment - much of a difference?
Authors: Brigo, D
Fries, C
Hull, J
Scherer, M
Sommer, D
Werner, R
Item Type: Conference Paper
Abstract: Pricing counterparty credit risk, although being in the focus for almost a decade by now, is far from being resolved. It is highly controversial if any valuation adjustment besides the basic CVA should be taken into account, and if so, for what purpose. Even today, the handling of CVA, DVA, FVA, ... differs between the regulatory, the accounting, and the economic point of view. Eventually, if an agreement is reached that CVA has to be taken into account, it remains unclear if CVA can be modeled linearly, or if nonlinear models need to be resorted to. Finally, industry practice and implementation differ in several aspects. Hence, a unified theory and treatment of FVA and alike is not yet tangible. The conference Challenges in Derivatives Markets, held at Technische Universitat¨ Munchen in March/April 2015, featured a panel discussion with panelists repre- ¨ senting different point of views: John Hull, who argues that FVA might not exist at all; in contrast to Christian Fries, who sees the need of all relevant costs to be covered within valuation but not within adjustments. Damiano Brigo emphasizes the nonlinearity of (most) valuation adjustments and is concerned about overlapping adjustments and double-counting. Finally, Daniel Sommer puts the exit price in the focus. The following (mildly edited) record of the panel discussion repeats the main arguments of the discussants – ultimately culminating in the awareness that if everybody charges an electricity bill valuation adjustment, it has to become part of any quoted price.
Issue Date: 31-Dec-2016
Date of Acceptance: 4-Oct-2016
URI: http://hdl.handle.net/10044/1/41630
DOI: https://dx.doi.org/10.1007/978-3-319-33446-2_8
ISBN: 9783319334455
ISSN: 2194-1009
Publisher: Springer
Start Page: 147
End Page: 168
Journal / Book Title: Innovations in Derivatives Markets. Fixed Income Modeling, Valuation Adjustments, Risk Management, and Regulation
Volume: 165
Copyright Statement: This chapter is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits use, duplication, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, a link is provided to the Creative Commons license and any changes made are indicated. The images or other third party material in this book are included in the work’s Creative Commons license, unless indicated otherwise in the credit line; if such material is not included in the work’s Creative Commons license and the respective action is not permitted by statutory regulation, users will need to obtain permission from the license holder to duplicate, adapt or reproduce the material.
Conference Name: Challenges in Derivatives Markets
Publication Status: Published
Start Date: 2015-03-30
Conference Place: Munich
Appears in Collections:Financial Mathematics
Faculty of Natural Sciences

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