We present a dialogue on Funding Costs and Counterparty Credit Risk modeling, inclusive of collateral, wrong way risk, gap risk and possible Central Clearing implementation through CCPs. This  dialogue is the continuation of the previous FAQ "Counterparty Risk, Collateral and Funding FAQ" by Brigo (2011). In this dialogue we focus more on funding costs for the hedging strategy of a portfolio of trades, on the non-linearities emerging from assuming borrowing and lending rates to be different, on the resulting aggregation-dependent valuation process and its operational challenges, on the closeout boundary conditions at default, on the implications of the onset of central clearing, on the macro and micro effects on valuation and risk of the onset of CCPs, on initial and variation margins impact on valuation  and on multiple discount curves. Through questions and answers and  by referring to the growing body of literature on the subject  we present a unified view of valuation (and risk) that takes all such aspects into account . We argue that the full onset of CCPs will not lead to the end of valuation and risk models but rather to the use of such models to verify and check that CCPs margin pricing is fair and adequate for the risks being covered. The dialogue is in the form of a Q A between a senior expert and a recently hired colleague .
We present a dialogue on Funding Costs and Counterparty Credit Risk modeling, inclusive of collateral, wrong way risk, gap risk and possible Central Clearing implementation through CCPs. This framework is important following the fact that derivatives valuation and risk analysis has moved from exotic derivatives managed on simple single asset classes to simple derivatives embedding the new or previously neglected types of complex and interconnected nonlinear risks we address here. This dialogue is the continuation of the "Counterparty Risk, Collateral and Funding FAQ" by Brigo (2011). In this dialogue we focus more on funding costs for the hedging strategy of a portfolio of trades, on the non-linearities emerging from assuming borrowing and lending rates to be different, on the resulting aggregation-dependent valuation process and its operational challenges, on the implications of the onset of central clearing, on the macro and micro effects on valuation and risk of the onset of CCPs, on initial and variation margins impact on valuation , and on multiple discount curves. Through questions and answers (Q A) between a senior expert and a junior colleague, and by referring to the growing body of literature on the subject , we present a unified view of valuation (and risk) that takes all such aspects into account .
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framework is important following the fact that derivatives valuation and risk analysis has moved from exotic derivatives managed on simple single asset classes to simple derivatives embedding the new or previously neglected types of complex and interconnected nonlinear risks we address here. This
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previous FAQ
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closeout boundary conditions at default, on the
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,
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(Q
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A) between a senior expert and a junior colleague, and
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,
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. We argue that the full onset of CCPs will not lead to the end of valuation and risk models but rather to the use of such models to verify and check that CCPs margin pricing is fair and adequate for the risks being covered. The dialogue is in the form of a Q
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A between a senior expert and a recently hired colleague