0

Do I need to discount using the OIS curve?

Then add some sort of FVA adjustment over and above the CVA/DVA? How do I work out a banks cost of funding?

Any help would be greatly appreciated.

Thanks

Dana
  • 1
  • 3

1 Answers1

3

An uncollateralized swap transaction should be valued at its own funding rate, which in practice means the bank unsecured funding rate, for instance approximated as 3M Libor. Alternatively use the OIS curve for the base valuation and mark the difference between 3M Libor discounting and OIS discounting as FVA.

Antoine Conze
  • 5,672
  • 1
  • 12
  • 15
  • A more complete treatment of FVA looks at the expected positive and expected negative exposures of the trade over its lifetime, and the cost/benefit of funding the resulting collateral requirements. The question at https://quant.stackexchange.com/questions/71955/2-ways-to-define-calculate-fva-same-or-different-simple-xva-question/ discusses exactly this. – Trent Gm Aug 02 '23 at 12:03