Textbook
Authors: Jon Gregory | Publisher: Wiley, 2020 | Edition: 4th
Overview
The definitive practitioner reference on valuation adjustments (xVA) in derivatives pricing. Covers counterparty credit risk, CVA, DVA, FVA, ColVA, KVA, and MVA from both theoretical and practical perspectives, including regulatory capital, collateral management, central clearing, and the operation of xVA desks.
Topics Studied
Deep BSDE methods for XVA (studied 22-03-2026)
Chapters read: Ch. 3 (pp. 41-61), Ch. 5 (pp. 85-106), Ch. 11 (pp. 283-312), Ch. 15 (pp. 409-460), Ch. 16 (pp. 465-482), Ch. 17 (pp. 485-526), Ch. 18 (pp. 529-563), Ch. 19 (pp. 565-589), Ch. 20 (pp. 591-607), Ch. 21 (pp. 609-645)
Key Definitions
- Eq. 5.1 (p. 86): XVA decomposition into valuation adjustment terms — xVA = CVA + DVA + FVA + ColVA + KVA + MVA
- Eq. 17.1 (p. 487): credit value adjustment — CVA formula as discounted expected loss
- Eq. 17.3 (p. 488): credit value adjustment — path-wise CVA formula
- Sec. 17.3.3 (p. 500): bilateral CVA — BCVA = CVA + DVA with first-to-default
- Eq. 18.2 (p. 535): funding value adjustment — symmetric FVA = FCA + FBA
- Sec. 18.2.5 (p. 539): Burgard-Kjaer framework — self-financing hedging derivation
- Eq. 19.1 (p. 567): capital value adjustment — KVA formula
- Eq. 20.1 (p. 594): margin value adjustment — MVA formula
Key Concepts
- Sec. 3.1 (pp. 41-52): counterparty credit risk — fundamentals and CVA desk role
- Sec. 5.2 (pp. 86-92): xVA components, overlaps, and portfolio effects
- Sec. 11.1 (pp. 283-291): expected positive exposure, potential future exposure
- Sec. 15.3 (pp. 419-430): Monte Carlo exposure simulation framework
- Sec. 16.2 (pp. 469-479): collateral value adjustment and OIS discounting and collateral discounting
- Sec. 17.6 (pp. 514-526): wrong-way risk in xVA — models and quantification
- Sec. 18.2.6 (p. 546): The FVA debate — Hull-White vs practitioner arguments
- Sec. 21.2 (pp. 619-638): xVA hedging strategies — Greeks, gamma, JTD risk
Atomic Notes
- counterparty credit risk
- credit value adjustment
- debt value adjustment
- funding value adjustment
- collateral value adjustment
- capital value adjustment
- margin value adjustment
- bilateral CVA
- replacement cost and credit exposure
- OIS discounting and collateral discounting
- expected positive exposure
- potential future exposure
- exposure at default
- Monte Carlo exposure simulation
- margin period of risk
- xVA desk operations
- xVA hedging strategies