Quantifi, which provides analytics and risk management solutions for the global OTC markets, now supports Funding Valuation Adjustments (FVA), allowing firms to measure the effect of funding costs on the valuation and risk management of OTC derivative portfolios.
Quantifis Counterparty Risk solution allows clients to measure the value and sensitivity of FVA at a trade and portfolio level. The solution is designed to help clients meet regulatory, corporate reporting and credit valuation adjustment (CVA) trading needs.
The cost of funding has become a significant topic for financial institutions as it is regarded as a key component in analyzing the exposures and profitability of a trade, says Rohan Douglas, CEO of Quantifi. FVA is the latest market innovation that has rapidly become the standard for measuring this cost.
Dmitry Pugachevsky, director of research at Quantifi, adds: FVA is the latest in a triad of valuation adjustments (CVA, DVA, FVA) which has to be taken into account when profitability of the trade is estimated. Unlike CVA, it is the cost which cant be passed to the counterparty, therefore knowing it is imperative for successful management of the trading book. Value of the FVA charge is proportional to the funding cost of the bank, therefore banks with higher funding spread (i.e., worse credit) end up losing trades and become less competitive.
(CG)