The increasing adoption of International Financial Reporting Standards (IFRS) around the world has led to a requirement for entities to measure certain financial assets and liabilities at fair value. Under IFRS 13 Fair Value Measurements, which became effective in 2013, the fair value of a liability has to reflect the risk of non-performance, which includes an entity’s own credit risk.
The adjustment required to the value of a derivative to reflect counterparty credit risk is termed a Credit Valuation Adjustment (CVA) and the adjustment to reflect own credit risk is termed a Debit Valuation Adjustment (DVA). CVA and DVA are required not only for financial reporting under IFRS but are also required for other purposes, including establishing the regulatory capital of financial institutions and for management and investor information.
The mitigation of credit counterparty risk has generated new risks and additional costs for banks and the end-users of OTC derivatives. These costs are now referred to as xVA. xVA is about the valuation of the credit, funding and regulatory capital requirements embedded in OTC derivative contracts.
The Counterparty Credit Risk program focuses on the counterparty credit risk of OTC derivatives. It is not about the pricing of derivatives but requires basic knowledge of their valuations. Topics covered in this training include, among others: Default Probabilities and Exposures; UCVA (Unilateral Credit Value Adjustment); DVA (Debit Value Adjustment); BCVA (Bilateral Credit Value Adjustment); differences between loans and derivatives; hedging CVA and DVA; CVA and DVA in Financial Reporting; CVA and DVA in Regulatory Capital; the new VAs: COLVA, MVA, KVA; xVA optimization.
This training is especially relevant for central banks and regulatory bodies. Counterparty Credit Risk is offered as a 2-day in-company training.
For an assessment of your organization’s individual training needs, contact [email protected] or call +31 (0)20 5200160.