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kelang
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Posts: 46
Joined: November 14th, 2011, 4:53 pm

FVA discount question...

February 3rd, 2017, 4:38 pm

Hello all,

May I ask one question on FVA discount under the exposure approach? Say, we price a trade under OIS discounting, and obtain the future EE, then we compute FVA as,

FVA = Sum ( DiscountFactor * EE * Funding Spread * Accrual Factor )

What "DiscountFactor" should be used here? "OIS" ? Or "OIS + Funding Spread"?

Thank you!
 
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joet
Posts: 37
Joined: September 27th, 2006, 2:52 pm

Re: FVA discount question...

March 17th, 2017, 11:36 am

If you are computing FVA, presumably you are trying to account for shareholder value only (and not 'whole bank' = shareholder + bondholder value). The correct discount factor is then OIS + funding spread + counterparty credit spread. Search for Mats Kjaer's 'Consistent XVA Metrics' papers on SSRN.
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