XVA. Green Andrew

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is significant in the context of funding valuation adjustment which will be discussed in Chapter 9.

18

Note that it is important to distinguish CCPs from exchanges. An exchange is a venue for the trading of commoditised derivative contracts that are in general liquid. Exchange-traded derivatives are supported by variation and initial margin and make use of clearing houses. A CCP is a venue for clearing standard derivatives that would otherwise have been traded bilaterally. They are not multiparty trading venues in the same sense as an exchange.

19

Now called LCH.Clearnet following the merger of the London Clearing House with the French Clearnet in 2003 (LCH, 2012c).

20

Optional breaks are often colloquially referred to as mutual breaks because of the bilateral nature of the option to break in most cases.

21

Technically this allows the filtration

to be factored into two components

associated with default risk and

corresponding to market state variables so that

. This assumption is standard in CVA approaches but will be relaxed in Chapter 7.

22

The integral in equation (3.12) could be approximated numerically in other ways such as via the trapezium rule.