XVA Desks: A New Era for Risk Management: Understanding, Building and Managing Counterparty, Funding and Capital Risk

  • 10h 21m
  • Ignacio Ruiz
  • Palgrave Macmillan Ltd
  • 2015

XVA Desks: A New Era for Risk Management is a comprehensive guide to the fundamentals and latest developments in this rapidly expanding field. Written by a seasoned practitioner, it begins with an overview of the role of OTC derivatives in the current banking industry. The book then goes into the fundamentals of counterparty credit and funding risk, explaining in detail how to build appropriate models. This includes an in-depth explanation of Monte Carlo simulations, collateral modelling, exposure allocation, simplified calculations, the role of central counterparties, and right and wrong way risk.

The book then considers the latest research in the valuation adjustments that are currently being implemented by the trading houses: CVA, DVA, FVA, LVA, CollVA, KVA, etc – with examples illustrating the meaning of these adjustments, why they exist, their inter-relationships, hedging and how they are changing trading and risk management behaviour. The book also covers the calculation of regulatory capital in financial institutions, explaining all the necessary components. A full chapter is dedicated to the emergence of model risk, with detail on a number of backtesting frameworks that can be implemented. Finally, the book dedicates a chapter to systems and project management in the context of counterparty and funding risk, highlighting key success factors in this space.

XVA Desks: A New Era for Risk Management will provide practitioners and academics with a comprehensive treatment of counterparty and funding risks, and is an essential reference for risk management practitioners, traders, structures, quants working in the front and middle offices of banks and other financial institutions, students and researchers in this space.

About the Author

Ignacio Ruiz is the founder and a director at iRuiz Consulting, where he provides a range of services in Quantitative Risk Analytics, with a focus in the XVA space. He has a proven track record at designing risk methodologies, building risk analytics frameworks, managing projects to completion and providing training in tier-1 universal financial institutions, investment banks, corporates, hedge funds, asset managers and regulators. His work includes facilitating the set up of XVA desks and functions in trading institutions, building and validating counterparty credit and funding risk models, helping in the application of IMM waivers for capital calculation models, facilitating the communication between trading, risk management, quants and systems units, risk quantitative research, backtesting of risk models, computer implementation of risk systems, etc. He has several publications that are often referenced in derivative pricing and risk management circles.

Before setting up iRuiz Consulting, he held positions as head strategist for Counterparty Risk Exposure Measurement at Credit Suisse, Head of Equity Risk Methodology at BNP Paribas and Hedge Fund Analyst at Hamilton Lunn.

In addition to his consulting work, Ignacio has set up iRuiz Techonologies, which develops niche and innovative algorithm-based solutions for this market. The first of these technologies, launched in 2015, is 'MoCaX Intelligence', a novel technology that has been proven to accelerate XVA, risk and capital calculations by several orders of magnitude.

Ignacio is a regular speaker, and delivers tailored presentations and courses on XVA, risk management and technology topics to a number financial institutions, regulators, training companies, through conferences and to academic institutions. He holds a PhD in nano-physics from Cambridge University.

In this Book

  • The Banking Industry, OTC Derivatives and the New XVA Challenge
  • The Roots of Counterparty Credit Risk
  • Exposure Measurement for Uncollateralised Portfolios
  • Exposure Measurement for Collateralised Portfolios
  • Exposure Allocation
  • Proxies for Exposure Measurement
  • Default Probability, Loss Given Default, and Credit Portfolio Models
  • Pricing Counterparty Credit Risk
  • Regulatory Capital
  • Right and Wrong Way Risk
  • CVA Desk, a Bilateral Dance
  • FIA Desk, the Effect of Funding
  • Calculating and Managing FVA
  • KVA Desk, Capital Management, and RAROC
  • XVA Desks: A New Era for Risk Management
  • Model Risk Management
  • Backtesting Risk Models
  • Systems and Project Management
  • Central Clearing and the Future of Derivatives
  • Notes