The xVA Challenge: Counterparty Credit Risk, Collateral, Funding, and Capital

London Financial Studies
Training overview
Professional Course
4 days
From 5,600 USD
Start dates
New York City
5,600 USD
Please contact LFS
London Financial Studies

Course description

Valuation Adjustments: The XVA Challenge

This course explains and describes the valuation adjustments (‘xVAs’) in pricing and valuation in relation to counterparty credit risk, collateral, funding, capital and initial margin. The concepts are built up sequentially and workshops are used to develop the key ideas including simulation of exposure, the impact of risk mitigants, collateral effects, regulation and the resulting calculation of CVA, DVA, FVA, ColVA, KVA and MVA.

During the programme, participants will examine the impact of accounting requirements (IFRS 13, FASB 157) on valuation adjustments and the IHS Markit Totem xVA consensus pricing. The programme will also address regulatory capital rules in detail – with the impact of the CVA capital charge and future changes such as SA-CCR, SA-CVA, FRTB and the leverage ratio. Funding, including the impact of the LCR and NSFR liquidity requirements for banks, is comprehensively discussed. The impact of initial margin via mandatory central clearing and the uncleared margin rules (UMR) are fully assessed. Initial margin methodologies at CCPs and in bilateral markets (SIMM) are also described.

The portfolio nature of xVA and links between different terms is considered in detail. xVA implementation and hedging will also be discussed, with particular attention being paid to current market approaches and best practice – areas where a clear consensus has not yet emerged or where there may be changes in the future will be highlighted and discussed. Current hot topics – such as funding assumptions, return on capital and the treatment of initial margin – will also be explored.

Participants will be able to take away all worked examples and additional exercises and models implemented using Excel functions and macros. They will also receive the latest edition of Jon's book "The xVA Challenge: Counterparty Risk, Funding, Collateral, Capital and Initial Margin" published by Wiley Finance.

The programme is divided into three distinct topics:

  • Basics and Counterparty Credit Risk
  • Credit and Funding (CVA/FVA)
  • Capital and Initial Margin (KVA/MVA)
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Training content

Day One

Basics and CCR Introduction

  • Overview and historical background
  • The impact of regulation and accounting
  • The importance of capital and funding costs
  • What is xVA?

Counterparty credit risk

  • Credit exposure
  • Credit limits and PFE
  • EFV, EPE and ENE
  • Incremental and marginal exposure

Example: PFE example

Mitigating Counterparty Risk

  • Netting and compression
  • Resets and ATEs
  • Collateral
  • Initial margin
  • Central counterparties

Example: Compression example

Day Two

Collateral, Exposure and CVA Collateral and discounting

  • Variation margin and collateral discounting
  • Cheapest-to-deliver valuation
  • Discounting to ColVA
  • Funding and discounting

Example: ColVA calculation

Exposure simulation

  • Challenges of exposure simulation
  • Models and calibration for each asset class
  • Proxies and correlations
  • Implementation with Monte Carlo
  • Modelling resets and collateral

Example: FX forward and IRS simulation


  • Proxy spread approaches
  • CVA formulas
  • Impact of collateral on CVA
  • Wrong-way risk
  • Bilateral CVA

Example: CVA/DVA calculation

Day Three

Funding and Capital Funding and FVA

  • NSFR and LCR and IBOR replacement
  • FVA formula and link to discounting approach
  • Capturing one-way CSAs
  • CVA/DVA/FVA framework
  • Asymmetric FVA

Example: FVA calculation

Managing and Hedging xVA

  • Bank approaches to hedging xVA
  • xVA greeks
  • Hedging instruments
  • P&L explained
  • Proxy hedging

Example: xVA hedging simulations

Regulatory capital requirements

  • Counterparty risk capital requirements
  • Cleared vs. non cleared capital requirements
  • Review of capital methodologies
  • SA-CCR
  • The leverage ratio

Example: SA-CCR vs. IMM

Day Four

KVA and Initial Margin Capital and KVA

  • Return on capital in banks
  • Capital value adjustment (KVA)
  • KVA management strategies
  • Initial margin in SA-CCR and IMM approaches
  • FRTB and BA-CVA / SA-CVA

Example: KVA calculation

Initial Margin and MVA

  • Bilateral margin rules
  • CCP initial margin methodologies
  • The ISDA SIMM™
  • MVA
  • Initial margin optimisation

Example: SIMM and MVA calculations

Recap and advanced topics

  • Overlaps and portfolio effects
  • xVA examples under different CSAs
  • xVA optimisation
  • Wrong-way risk
  • Asymmetric FVA
  • Approach to capital and KVA

About London Financial Studies

London Financial Studies

Global markets move quickly, evolving continuously and deepening in complexity. Over the past decades London Financial Studies has provided specialist executive education programs and short courses focused exclusively on global capital markets. Preparing only the highest quality and most relevant...

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