Valuation Adjustments: The XVA Challenge

Overview Teacher Outline Video Brochure Testimonials

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)

Recommend to a Colleague

Date:

Venue:
Central London and remotely via LFS Live

Fee:
£1200 per day
£3600 total

This course is also available in New York Time Zone and Singapore Time Zone

Who The Course is For

Banks, end-users of derivatives, regulators, consultants, software providers and other third parties
xVA desks
Derivatives traders, structurers and salespeople
Treasury and Finance departments
Regulatory capital and reporting
Risk managers (market and credit)
IT, product control and legal
Quantitative researchers
Portfolio managers
Operations / Collateral management

Learning Objectives

Gain familiarity with all the different valuation adjustments, their foundations and how they interact with each other
Learn how to calculate each xVA through real-world, practical examples
Analyze the impact of regulation and accounting requirements
Gain understanding of current best market practice and cutting-edge developments

Prior Knowledge

Numerate background (basic)
Knowledge of derivatives products
Basic knowledge of Microsoft Excel

Keep me updated about this course

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

CVA and DVA

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

Keep me updated about this course

I like the very well balanced relation of theory and their practical applications.

(Executive Director - Raiffeisen Bank International)

During the xVA Challenge course, I could strongly feel that the tutor has a wealth of experience and is up to date with the edge of the development in counterparty risk. He shared his knowledge and current trend analysis in the industry, so we were introduced to many cases, which helped us to understand the adjustment process more intuitively.

(- - BNP Paribas)

Great training by a great, very knowledgeable teacher!

(Financial Risk Manager - ING Bank NV)

I strongly recommend the course "The xVA Challenge: Counterparty Credit Risk, Collateral, Funding and Capital" to all those financial pratictioners who wants to gain a deep understanding the xVA components and enhance their skills in market and credit risk.

(Risk Specialist - Kommuninvest i Sverige AB)

Very interesting and in-depth course on several relevant aspects of xVA

(Senior Associate - Rabobank)

The xVA challenge training held by Mr Jon Gregory [teacher] can be considered a mandatory step in the skill development of whoever wants to really understand derivatives management.

(Expert - Bank of Italy)

The xVA course given by Dr. Jon Gregory is a must for anyone who is active in the financial markets. The materials are world class and the delivery and interaction bring it to a new level. It exceeded all of my expectations.

(Managing Partner - Lucas and Associates)

Before attending this course I have already benefited a lot from reading Dr Gregory's book. During the course, Dr Gregory gave detailed elaboration on all the concepts, which greatly strengthened my understanding. This is the best course I have attended during the recent 10 years.

(Executive Director - DBS Bank Ltd)

Concise but packed with information, yet not overwhelming. Excellent course to gain an overview of xVA and its related concepts!

(Analyst - DBS Bank)

The course gave me a better insight in the world of xVA and the tools needed for practical application.

(Trader - Dutch State Treasury Agency)

"The xVA course by London Financial Studies has covered all relevant topics of today's derivative valuation. Jon Gregory provided an excellent insight into recent developments and links theoretical knowledge with the current and future regulatory landscape."

(Rates Trading - Commerzbank AG)

Great overview of main topics that will challenge bank's derivatives business in the next years

(Treasury - Banca IMI)

The course exceeded my expectations, all topics were treated in a deep way, with a real world application perspective. Additionally, the professor was very didactic and showed a deep knowledge in the subjects discussed.

(Treasury Products Manager - Itau BBA)

"Jon Gregory is an excellent presenter and the course had the right amount of mathematical rigor and practical follow up. He covered all topics per the course outline following a very strict timeline such that content was allocated adequate time proportional to its complexity. Hands on spreadsheets and examples were sprinkled throughout the course so I could connect to the topics though they are not part of my day-to-day work. One of the best financial maths courses I took - ever."

(Senior Risk Analyst - PNC)

"Jon's course is one of the most practical courses I have attended in the area of Credit Exposure, CVA and capital."

(Markets Risk - Anz Banking Corporation)

"[...] (helpful) especially on credit exposure, CVA and funding. The overview of CCPs is also very relevant to my line of work. Would like to attend Dr Jon Gregory's future courses again. LFS did a marvelous job in organizing this event. I would definitely recommended my colleagues to attend courses here."

(Middle Office Operations - BIA)

"(The CVA course) covers all what we've been looking for. From the PFE,EE,EPE to Basel 3 requirements, clearing counterparties and credit risk management and valuations.The tutor provides us with his model where we can play around with and familiarize with the specific models which indeed helped me a lot in understanding the course.It was a great experience. Thank you LFS for arranging such training!"

(Middle Office Operations - BIA)

"The Counterparty Credit Risk course delivers real-world and in-depth insight in the different evolutions in this field."

(Managing Director - Belfius Bank)

"Great eye opening experience. Best course ever!"

(Senior Quantitative Analyst - Global Investment Bank)

"Great course. The content really dissected the counterparty risk aspects of trading and all of the relevant pieces that can impact CVA. Well done and I'd definitely recommend it to my colleagues."

(Business Development - Financial Software Firm)

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