This paper addresses the valuation of contracts which exhibit inflation-linked delayed payments. The origin and magnitude of the convexity valuation difference obtained through stochastic and deterministic modelling is described and explained. Results from "Convexity adjustments in...

It is common for practitioners to neglect correlation effects when reporting bilateral credit value adjustments (BCVA) to derivatives by using deterministic credit models. In this white paper we consider the addition of stochastic credit models to our interest rate BCVA modelling framework. The...

Derivative valuation adjustments (xVA) have been an evolving topic over the past decade, now giving us a rich theory of what was traditionally referred to as the relatively opaque "credit spread" imposed by banks. As independent risk advisors, we are regularly positioned between clients and...

Bilateral credit value adjustments (BCVA) are intended as counterparty-level risk measures, despite some auditors encouraging trade-level computation to aid tractability and for use in reports like hedge-effectiveness. An unfortunate fact is that accounting for BCVA on a trade-by-trade basis can...

This white paper addresses our procedure for the calculation of derivative value adjustments (xVA) to the risk-free value of inflation linked instruments. The modelling framework that we adopt and its calibration are described and applied to an inflation linked swap that we are required to...