Valuation of Credit Risk
Fair Valuation Of Derivatives and Inclusion of Credit Risk Spread | Shasat
In the current dynamic market environment, the methodology for valuing derivatives has significantly evolved, becoming more complex. Guided by FAS 157 / IFRS 13, fair value measurements are required to reflect the assumptions of market participants, incorporating considerations such as counterparty credit risk into derivative valuations. These accounting standards insist that the valuation of liabilities must account for non-performance risk, including an entity’s own credit risk, detailed in IFRS 7 Financial Instruments: Disclosures. Thus, IFRS 13 mandates the inclusion of credit risk in fair value assessments, necessitating adjustments like debit valuation adjustment (DVA) or credit valuation adjustment (CVA).
The conversation around valuation adjustments has expanded well beyond CVA and DVA, embracing Funding Value Adjustments (FVA), XVA, and introducing Capital Valuation Adjustments (KVA) and Margin Valuation Adjustments (MVA) among others. These Valuation Adjustments (VAs) are pivotal, reshaping not only how derivatives are valued but also impacting financial reporting, profitability, and risk management practices comprehensively.
Our valuation experts at the Valuation Desk are at the forefront of these developments, mastering the diverse methodologies for calculating CVA, DVA, FVA, XVA, KVA, and MVA. We partner with a broad spectrum of corporates, treasuries, and financial institutions, equipping our clients with the expertise and insights needed to adeptly navigate the complexities of modern derivatives valuation.
Should you require specialized guidance or have any queries regarding our valuation services, we invite you to get in touch with our knowledgeable team at the Valuation Desk. Our experts are ready to provide you with tailored support and insights to navigate the complexities of financial valuation. Contact us today to discover how we can assist you in achieving your financial objectives.”