What is xVA ?
Jon Gregory · 2020
In the years since the global financial crisis began, some of the assumptions concerning pricing, valuing, and managing derivatives have been systematically challenged as a result of market practice, accounting and regulatory change. In general, this has led to a series of valuation adjustments (xVAs) that transform a simple valuation into the correct one. The role of xVA is to adjust some base value (e.g. one based on simple discounting) to take into account more complex components such as credit and funding and create the actual valuation. Changes in accounting standards have been a key driver for the implementation of credit value adjustment. This has been driven by components of FAS 157, which are part of US GAAP, and the IFRS 13, which are relevant for most other regions. IHS Markit's Totem service is a well-established utility for valuation consensus, enabling market participants to price test their own valuations for various products.