PRICING OF COUNTERPARTY RISK AND FUNDING WITH CSA DISCOUNTING, PORTFOLIO EFFECTS AND INITIAL MARGIN.

In this paper we extend the existing literature on xVA along three directions. First, we enhance current BSDE-based xVA frameworks to include initial margin by following the approach of Crépey (2015a) and Crépey (2015b). Next, we solve the consistency problem that arises when the front- office desk of the bank uses trade-specific discount curves that differ from the discount curve adopted by the xVA desk. Finally, we address the existence of multiple aggregation levels for contingent claims in the portfolio between the bank and the counterparty, providing suitable extensions of our proposed single-claim xVA framework. 

This is a joint work with: Francesca Biagini and Immacolata Oliva

Preprint available at: https://arxiv.org/abs/1905.11328