8 January 2018
Ria Sharma, triCalculate Sales
XVA is a term used to reflect the various ‘valuation adjustments’ that are made to the price of an OTC derivative transaction to accurately value the costs of the contract.
While still a new concept for the buy-side, XVAs are now relatively well known on the sell-side. Following the financial crisis, the costs associated with trading OTC derivatives were brought to the forefront for banks – credit risk used to be free, now it’s not. XVAs are a means of quantifying credit risk (CVA) and other costs associated with trading OTC derivatives.
Increasingly, these XVAs are being passed on to buy-side clients, who are getting charged by their provider banks for reasons that may not be clear to them yet.
Implications for the buy-side
Why should buy-side firms analyse XVAs?
As costs of trading OTC derivatives continue to increase, buy-side firms need transparency into what they’re being charged by their provider banks and why.
With the web-based triCalculate service, buy-side market participants can easily, quickly and accurately calculate the XVA numbers themselves. Through understanding XVA costs, buy-side firms can: