IHS Markit: MVA - The Next Challenge for Derivatives Pricing

Staying competitive in the derivatives markets today requires participants to price in the total cost of the trade to the bank. The total cost must include the potential for credit losses (CVA), funding costs (FVA/ColVA) and capital (KVA), together known as xVAs (or ‘x’ valuation adjustments). Central clearing of derivatives, and the related introduction of bilateral Initial Margin rules, can reduce CVA and KVA costs, but the net effect is to shuffle costs into funding the Initial Margin (IM)