Question

Explain what MVA and FVA measure.

   Explain what MVA and FVA measure.

Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 9, Problem 4

Instant Answer

Solved by Expert Surendra Kumar

07/02/2021

Step 1

It is a financial metric that indicates the value created by a company for its shareholders. MVA is calculated by subtracting the total capital invested in a company from its market value. Show more…

Show all steps

lock

Thanks for your feedback!

Explain what MVA and FVA measure.

Play audio

Feedback

Powered by NumerAI

Surendra Kumar and 52 other educators are ready to help you.

Ask a new question

Labs

Want to see this concept in action?

NEW

Explore this concept interactively to see how it behaves as you change inputs.

View Labs

Key Concepts

MVA

Margin Valuation Adjustment refers to the adjustment made to the valuation of a derivative to account for the costs associated with posting collateral or initial margin. This concept is centered on measuring the economic impact of the capital tied up in margin requirements, which affects the overall profitability and pricing of derivative transactions.

FVA

Funding Valuation Adjustment represents the adjustment in the value of a derivative to reflect the costs of funding the positions or collateral. Specifically, it captures the difference between the risk-free rate typically assumed in derivative pricing models and the actual rate at which an institution can borrow or lend funds, thereby ensuring that funding costs are adequately incorporated into the pricing framework.

Recommended Videos

Transcript

Ace is your personal tutor. It breaks down any question with clear steps so you can learn.

Start Using Ace

Continue solving this problem

Create a free account to:

View full step-by-step solution
Ask follow-up questions with Ace AI
Save progress and study later