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 o Cr\'epey (2015a) and Cr\'epey (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 by providing suitable extensions of our proposed single-claim xVA framework .
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 in presence of defaults . Next, we solve the consistency problem that arises when the front-office desk of the bank uses trade-specific discount curves (CSA discounting) which differ from the discount rate adopted by the xVA desk. Finally, we clarify the impact of aggregation of several sub-portfolios of trades on the xVA-valuation of the resulting global portfolio and study related non-linearity effects .
R
by following the approach o Cr\'epey (2015a) and Cr\'epey (2015b)
in presence of defaults
R
that
(CSA discounting) which
R
curve
rate
R
address the existence of multiple aggregation levels for contingent claims in the portfolio between the bank and the counterparty by providing suitable extensions of our proposed single-claim xVA framework
clarify the impact of aggregation of several sub-portfolios of trades on the xVA-valuation of the resulting global portfolio and study related non-linearity effects