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09.00 - 10.30: Jon Gregory: Independent Expert

The Impact of Initial Margin on xVA

  • Central clearing and bilateral margin rules
  • The cost of initial margin (MVA)
  • Projection and MVA
  • Including initial margin in CVA and KVA
  • The overall cost of MVA vs. CVA/KVA

Break: 10.30 - 10.50

10.50 - 11.40: Rohan Douglas: CEO, Quantifi 

The Cost of Collateral for Clearing

  • Regulations and Swap Clearing
  • MVA – Margin Valuation Adjustment
  • The Cost of funding Initial Margins (IMCA)
  • The Cost and Benefit of funding Variation Margins (VMCA, VMBA)
  • FVA, KVA – funding components of XVA
  • OTC trade profitability

11.40 - 12.30: Alexander Antonov: Senior Vice President, Quantitative Research, Numerix

Efficient Numerical Methods for the KVA and the Initial Margin

  • Essential building blocks for the KVA & IM
  • The beasts: simulated Future VaR, Future PEF and Future CVA
  • Future VaR/PFE: brute force simulation and efficient approximation
  • Future CVA: theory and practice
  • Numerical comparison for cross-currency swap portfolio

Lunch: 12.30 - 13.40

13.40 - 15.10: Andrew Green: Head of Quantitative Research - CVA / FVA Quantitative Research, Lloyds Bank

XVA at the Exercise Boundary

  • When an option decision is made it is done on the basis of optimality, that is:
    • European options: Exercise Value > No Exercise Value
    • Bermudan / American options: Exercise Value > Continuation Value
  • Historically, option exercise decisions have:
    • Often ignored XVA
    • Been based on the single option transaction
  • XVA changes the way the option exercises should be evaluated:
    • European options: Exercise Value + XVA (exercise) >  No Exercise Value + XVA (no exercise)
    • Bermudan / American options: Exercise Value + XVA(exercise) > Continuation Value + XVA(continue)
  • XVA therefore moves the exercise boundary
  • Furthermore, given that XVA applies at least at the level of the counterparty, exercise must also be evaluated at least at counterparty level and potentially at the level of the whole portfolio once effects such as the leverage ratio are considered.
  • Optional / mutual break clauses are a common credit risk mitigation feature
    • To value them correctly requires consideration of XVA at the break date.
    • For mutual breaks, XVA implies idiosyncratic valuations between both parties to the transaction leading to different exercise boundaries for the break for each party
  • This paper:
    • Provides a means to include the impact of XVA in exercise decisions with the corresponding impact on valuation
    • Gives an impact assessment

Break: 15.10 - 15.30

15.30 - 16.30: Gilles Artaud: Deputy Head of Counterparty Credit Risk & Khalid Yaqobi: Head of Quant for Counterparty Credit Risk, Credit Agricole-CIB

Initial Margin, a Tidal Wave?

Capital and Collateral: New margin adjustment rules and developments around initial margin

  • W’s ?
    • Why, Where, What, Who When & What, and hoW
  • THE solution?
    • Is CCR / CVA dead ?
    • New risk, new costs
  • New art of trading
    • Adapting to new environnement
    • Impact on XVAs

End of conference

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