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Funding Value Adjustments / Leif Andersen, Darrell Duffie, Yang Song.
- Format:
- Book
- Author/Creator:
- Andersen, Leif.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w23680.
- NBER working paper series no. w23680
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2017.
- Summary:
- We demonstrate that the funding value adjustments (FVAs) of major dealers are debt-overhang costs to their shareholders. In order to maximize shareholder value, dealer quotations therefore adjust for FVAs. Our case examples include interest-rate swap FVAs and violations of covered interest parity. Contrary to current valuation practice, FVAs are not themselves components of the market values of the positions being financed. Current dealer practice does, however, align incentives between trading desks and shareholders. We also establish a pecking order for preferred asset financing strategies and provide a new interpretation of the standard debit value adjustment (DVA).
- Notes:
- Print version record
- August 2017.
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