XVA Market Data and Valuation Settings

XVA calculations will required additional credit curves and market data:

a matrix of correlations between underlying IR rates and FX rates (base vs counter currency pairs)
the volatility curves associated to those underlying IR rates and FX rates
credit curves associated to counterparties ^(*) for CVA and FVA calculations
a ‘SELF’ credit curve for DVA and FBA calculations

^(*) The mapping between the Counterparty trade attribute and the relevant credit curve will be driven by the credit curve’s Ticker attribute.

For the purposes of FCA and FBA calculations, funding nodes will be required (with the relevant MDK mapping) and can only be defined for credit curves whose Seniority = ‘SNRFOR’.

On this page, we will discuss:

how to create a rates vs FX correlation matrix
how to add correlation points to such matrix
how to define the XVA model parameters

Correlation Matrices

1. Creating a Correlation Matrix

Under XVA/Correlation Matrices, at the correlation matrix list level, you can create a matrix by clicking on Add New (or edit an existing one by double-clicking on the line item).

For the purpose of this example, you can manually create a new matrix to replicate the ‘USD_Corr’ matrix which can be used for XVA calculations for the ‘LONDON_FICC’ company setup (IRS_PTF_2 portfolio), with USD as discount currency.

Alt for image — Creating a Company
XVA/CORRELATION MATRICES

A description of the correlation matrix’s attributes and corresponding permissible values are set out in the table below.

Field Name	Description	Permissible Values
Name	Correlation matrix name	Free text
Discount Ccy	Applicable single currency for discounting purposes	Any permissible discount currency

2. Adding Correlation Points

Under XVA/Correlation Matrices, at the correlation matrix level (after double-clicking on it at the correlation matrix list level), you can import (import) a list of correlation points or manually create one (e.g., a EUR IR vs. EUR/USD FX rate) by first clicking on Add New, then on .

A description of a correlation point’s attributes and corresponding permissible values are set out in the table below.

Field Name	Description	Permissible Values
Currency 1	If Type 1 = "IR": the underlying rates ccy If Type 1 = "FX": the counter ccy of the matrix's Discount Ccy 3-letter ISO 4217 ccy code	Any ccy associated to a permissible IR curve See FX Rate Rule
Type 1	Underlying asset type: rates or FX rate (counter currency)	IR \| FX
Currency 2	If Type 2 = "IR": the underlying rates ccy If Type 2 = "FX": the counter ccy of the matrix's Discount Ccy 3-letter ISO 4217 ccy code	Any ccy associated to a permissible IR curve See FX Rate Rule
Type 2	Underlying asset type: rates or FX rate (counter currency)	IR \| FX
Value	The pairwise correlation value	Numeric

XVA Model Parameters and Assumptions

For XVA calculations, you will need to:

parameterise the Hull-White model that is used for XVA calculations
define the main projection index that will be used in the diffusion process on a currency basis

1. Hull-White Model Parameters

Under XVA/Settings, in the Exposure Calculation Parameters window, you can specify the parameterisation of the XVA model by clicking on Edit.

Field Name	Description	Permissible Values
Hull-White Mean Reversion	Hull-White model’s mean reversion	Numeric
Sigma Step, years	The time step-size for Hull-White model’s volatility vectors, expressed in years	Numeric
Time End, years	The final point of Hull-White model’s volatility vectors, expressed in years	Numeric
Time Step, years	Hull-White model’s grid discretisation, expressed in years	Numeric
PFE Percentile, %	The PFE percentile for exposure calculations	Numeric (e.g. 95 for 95%)
# Simulation for XVA	The number of Sobol sequences used in the integration algorithm for XVA calculations	2^n, n = 2 to 14
# Simulation for PFE	The number of Sobol sequences used in the integration algorithm for exposure calculations	2^n, n = 2 to 14

2. XVA Projection Index Definition

For each currency that has more than one associated projection indices, you will need to specify the main projection index that will be used for simulations in the Hull-White model. This is done under XVA/Settings, in the Main Projection Index window, by clicking on Edit.

A description of the XVA projection index definition and corresponding permissible values are set out in the table below.

Field Name	Description	Permissible Values
Currency	A currency that has more than one permissible projection indices (read-only)	See permissible IR projection curves
Main Projection Index	The projection index that will be used for simulations in the Hull-White model	See permissible IR projection indices

Introduction to Xplain

Curves

Portfolios

Data

Valuations

Data Cleansing

Preferences

Admin

Importing and Versioning

XVA Module

TRS Module