9781137435835

This latest addition to the Financial Engineering Explained series focusses on the new standards for derivatives valuation, namely, pricing and risk management taking into account counterparty risk, and the XVA's – Credit, Funding and Debt value adjustments.

Written by practitioners with hands on experience in this field, it will provide a practical introduction to different valuation adjustment for derivative trading by first examining the various aspects of derivative trading business. The book then proceeds to explain what these adjustments (CVA, DVA, FVA) are and their impacts. Issues related modeling and implementation techniques will be discussed. The emphasis would be on giving a complete picture in a transparent manner, so that the reader can get a clear understanding of these practical valuation issues that are critical in pricing, trading and risk management of derivatives.

Dongsheng Lu is Managing Director and Head of Quantitative Research at BNY Mellon's Derivatives Trading Unit. His group is responsible for developing derivatives trading/pricing models and building trading/risk management infrastructure for interest rate, equity and foreign exchange derivatives trading business. Before joining BNY Mellon in 1998, he did two years of postdoctoral research at University of Pennsylvania on quantum mechanical calculations and molecular simulations of biological enzymes. He holds a PhD in Theoretical Chemistry from the Ohio State University and a B.S. degree from University of Science and Technology of China.

Frank Juan is Executive Director at JPMorgan Chase, New York and a highly experienced derivatives practitioner and researcher. He previously worked in Global Markets Risk Management at BNY Mellon. Frank has been actively researching derivatives valuation throughout his career, and recently published (SSRN) an academic paper with Dongsheng Lu on CVA and FVA, which has been well received. He holds a PhD in Physics from Harvard.

PART I: INTRODUCTION TO DERIVATIVE TRADING
1. The Participants of Derivative Market and their Interaction (Chart)
2. Trading Perspective
3. Operational: Collateral with Counterparty
4. Funding
5. Legal
6. Regulations
PART II: EXPOSITION OF VARIOUS VALUATION ADJUSTMENTS
7. CVA (Including DVA) Primer: Expected Credit Default Loss
8. FVA Primer: Derivatives Pricing under Different Funding Situations
9. FVA Debate and Solution
10. RVA
PART III: MODELING, CALCULATION AND SYSTEM IMPLEMENTATION
11. CVA and FVA Modeling
12. CVA and FVA with Complex CSA Terms
13. RVA and Downgrade Triggers: Complexity of Replacement Process
14. Examples
PART IV: CVA/FVA RISK MANAGEMENT AND HEDGING
15. Traditional Derivatives Greeks and Risk Management
16. Gamma, Theta and Cross Greeks for CVA
17. Collateral Operations, Hedging and Cross Currency Risk
18. Rating Dependent Funding: Credit Dependency of Funding
19. CVA and FVA Together: Cross Terms
20. Wrong Way Risk, Wrong Way Collateral
21. Systemic Downgrade Risk
22. Centralized vs. Decentralized Management
23. Absence of Market Traded CDS: No Individual Names

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The XVA of Financial Derivatives: CVA, DVA and FVA Explained

The XVA of Financial Derivatives: CVA, DVA and FVA Explained

1137435836

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