2012 saw significant discussion around FVA there was nothing like the level of change that might have been expected from the momentum of discussion and thought. One of the main drivers for this slowing down was that the market’s valuation experts on the front line of implementation ran into some significant theoretical challenges. It was also highlighted that many banks couldn’t implement FVA well without getting to the bottom of its interaction with internal treasury liquidity management and pricing. FVA was turning out to be a lot more complex to implement than other recent moves.
2013 has seen renewed interest in the topic but the detailed theoretical challenges remain. This paper seeks to add value by offering a potential way forward on a number of these difficult issues of approach and interaction with liquidity management. As such, therefore, it is unashamedly technical. We offer nine propositions on some of the key open topics being discussed. In doing so we seek to spark debate and generate consensus, as well as perhaps enhancing awareness for those who might be at an earlier stage in the journey.
Update: view our new 2014 piece on FVA decisions and implementation (PDF 107 KB).