《Market Risk Measurement and Management》精选解析II

A risk manager is asked to explain funding valuation adjustment(FVA)to senior managers who are unfamiliar with the valuation of derivative portfolios.Which of the statements below is correct regarding FVA?
 
A.FVA is a fair value adjustment for counterparty credit risk and is calculated at portfolio level.
 
B.FVA involves the quantification of counterparty default probability and expected LGD.
 
C.FVA adjusts for impact of firm’s own credit risk on the derivative portfolio’s carrying value.
 
D.FVA accounts for the firm’s funding cost associated with uncollateralized derivatives.
 
 
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Answer:D
 
In order to recover the average funding cost assessed to a derivatives trade,a dealer will make a FVA.The FVA is an adjustment made by the dealer,which allows for the recovery of average funding costs for any transactions that are uncollateralized.
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