XVA of Financial Derivatives: CVA, DVA and FVA Explained

Dongsheng Lu is Managing Director and Head of Quantitative Research at BNY Mellon's Derivatives Trading Unit. His group is responsible for developing derivatives trading/pricing models and building trading/risk management infrastructure for interest rate, equity and foreign exchange derivatives trading business. Before joining BNY Mellon in 1998, he did two years of postdoctoral research at University of Pennsylvania on quantum mechanical calculations and molecular simulations of biological enzymes. He holds a PhD in Theoretical Chemistry from the Ohio State University and a B.S. degree from University of Science and Technology of China.

• PART I: INTRODUCTION TO DERIVATIVE TRADING 1. The Participants of Derivative Market and their Interaction (Chart) 2. Trading Perspective 3. Operational: Collateral with Counterparty 4. Funding 5. Legal 6. Regulations PART II: EXPOSITION OF VARIOUS VALUATION ADJUSTMENTS 7. CVA (Including DVA) Primer: Expected Credit Default Loss 8. FVA Primer: Derivatives Pricing under Different Funding Situations 9. FVA Debate and Solution 10. RVA PART III: MODELING, CALCULATION AND SYSTEM IMPLEMENTATION 11. CVA and FVA Modeling 12. CVA and FVA with Complex CSA Terms 13. RVA and Downgrade Triggers: Complexity of Replacement Process 14. Examples PART IV: CVA/FVA RISK MANAGEMENT AND HEDGING 15. Traditional Derivatives Greeks and Risk Management 16. Gamma, Theta and Cross Greeks for CVA 17. Collateral Operations, Hedging and Cross Currency Risk 18. Rating Dependent Funding: Credit Dependency of Funding 19. CVA and FVA Together: Cross Terms 20. Wrong Way Risk, Wrong Way Collateral 21. Systemic Downgrade Risk 22. Centralized vs. Decentralized Management 23. Absence of Market Traded CDS: No Individual Names