DVA for Assets

Chris Kenyon*, Richard Kenyon

*Corresponding author for this work

Research output: Contribution to specialist publication or newspaperArticle

Abstract

The effect of self-default on the valuation of liabilities and derivatives (DVA) has been widely discussed but the effect on assets has not received similar attention. Any asset whose value depends on the status, or existence, of the firm will have a DVA. We extend (Burgard and Kjaer 2011) to provide a hedging strategy for such assets and provide an in-depth example from the balance sheet (Goodwill). We calibrate our model to seven US banks over the crisis period of mid-2007 to 2011. This suggests that their reported profits would have changed significantly if DVA on assets, as well as liabilities, was included - unless the DVA was hedged.
Original languageEnglish
Specialist publicationRisk.Net
Publication statusPublished - 29 Jan 2013

Keywords

  • DVA derivatives financial instrument banking

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