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H2020Doctoral network2018–2022

ABC-EU-XVA · Valuation Adjustments for Improved Risk Management

Horizon 2020 — Marie Skłodowska-Curie Actions

Duration
2018-11-01 → 2022-10-31
EU contribution
€1,550,869
Participants
11
Scheme
MSCA-ITN

Lines connect the coordinator with its partners.

Results in brief

Valuation Adjustments for Improved Risk Management

This EID project aimed to address a number of significant challenges arising from the mathematical modelling, numerical computation and risk management, in the form of valuation adjustments, of financial contracts. Valuation adjustments represent a major focus of the ongoing regulatory reform related to the recent global financial crisis. Over-the-counter (OTC) financial derivatives form a significant part of global finance, with the notional outstanding of approximately over 550 billion US dollars in 2016. They are typically traded bilaterally, and each party takes counterparty default risk with respect to the other party. Since the global financial crisis, a number of new regulations have been introduced to improve the stability, robustness and resilience, where aspects such as counterparty risk and liquidity risk were shown to be significant. As a result of these changes, banks are required to apply and report on account books various valuation adjustments of the OTC derivatives to reflect the risk management costs of the associated risks. X-Value Adjustment (XVA) refers generally to these valuation adjustments. The purpose of XVA is twofold: to hedge possible losses due to a counterparty default event, and to determine the amount of capital required by the bank under the new regulations. The "X" in XVA can be many different letters nowadays, as financial industry has to deal with CVA (credit value adjustment), CollVA (collateral value adjustment), DVA (debt value adjustments), FVA (funding value adjustment), KVA (capital value adjustment), MVA (margin value adjustment), amongst others. The project ABC-EU-XVA is now concluded.

Data: CORDIS, © European Union

Project objective

This EID aims to address significant challenges arising from the mathematical modelling, numerical computation and risk management, in the form of valuation adjustments, of financial contracts. Valuation adjustments represent a major focus of the on-going regulatory reform related to the recent global financial crisis. X-Value Adjustment (XVA) refers generally to these different valuation adjustments. The purpose of XVA is two-fold: To hedge possible losses due to a counterparty default event, and to determine the amount of capital required by the institution under the new regulations. The ""X"" in XVA can be many letters, as institutions have to deal with CVA (credit value adjustment), FVA (funding value adjustment), KVA (capital value adjustment), MVA (margin value adjustment), etc. This is reflected in the EID's title. As these adjustments require deep understanding in terms of the mathematical modelling and efficient computation, we will work at the forefront and consider huge financial portfolios and different market scenarios, inclusing extreme cases.We thus wish to educate six ESRs in modern risk management and valuation adjustments, and we are in the unique setting that four major European banks, one major European insurer plus a major consulting company agreed to join efforts with five reputed academic beneficiaries, from Spain, Italy, Belgium and the Netherlands. The industry will host the ESRs for 18 months and will be active in the special organized Events.Next to advanced research projects for ESRs, we will set up a series of educational weeks in the form of summer- and winterschools, where different aspects of risk management and valuation adjustments, including wrong-way risk, collateralization, real world versus risk neutral measure simulations are discussed in detail. Tailored courses on entrepeneurship, on boosting the ESR's CVs, on management and proposal writing will give the ESRs a warm start of a successful career in the financial industry.""

Original text from CORDIS.

Participants

  • STICHTING NEDERLANDSE WETENSCHAPPELIJK ONDERZOEK INSTITUTEN · UtrechtCoordinatorNetherlands
  • ABANCA CORPORACION BANCARIA, SA · A CORUNASpain
  • ALMA MATER STUDIORUM - UNIVERSITA DI BOLOGNA · BolognaItaly
  • ALMIS INFORMATICA FINANCIERASpain
  • BANCO SANTANDER SA · CANTABRIASpain
  • BELFIUS BANQUE SA · Bruxelles / BrusselBelgium
  • COOPERATIEVE RABOBANK UA · UtrechtNetherlands
  • TECHNISCHE UNIVERSITEIT DELFT · DelftNetherlands
  • UNIPOL GRUPPO FINANZIARIO SPA · BolognaItaly
  • UNIVERSIDADE DA CORUNA · La CorunaSpain
  • UNIVERSITE LIBRE DE BRUXELLES · Bruxelles / BrusselBelgium

Links

Data: CORDIS, © European Union