Chapter 8: Typical Balance Sheet and Trade Relations of Banks and Implications for XVA

A typical financial institution engages with a range of counterparties. Typically, there are collateral arrangements with fellow financial institutions and larger funds and some major corporates. Also, deals done across different assets tend to have different maturities (with interest rates including cross-currency swaps being long dated and equities being short dated in nature). The different types of business arrangements and maturity profile of deals across assets have significant implications on the importance of XVA and also the computational challenges that one will face in implementing this. We thus wish to explore this topic here…