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arXiv research

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4 results for “HVA”

Handling model risk with XVAsq-fin.PR

Paper revisits HVA to address model risk in banking.

problem Model risk and dynamic hedging frictions in banking.

method Reconciles global fair valuation with local bank models.

result Local models should be excluded rather than managed via reserves.

model risk HVA banking local models global fair valuation

2022-05-24abs ↗pdf ↗

Robust Hedging Valuation Adjustment under Liquidity--Demand Stressq-fin.RM

Paper develops a robust HVA measure for dynamic hedging under liquidity stress.

problem Valuation of dynamic hedging under liquidity stress.

method Defines robust HVA as worst-case expected loss over a relative-entropy neighborhood of loss distributions for no-trade bands.

result Wider no-trade bands lower rebalancing costs but increase hedge-error risk.

Hedging Valuation Liquidity Stress Dynamic Hedging Relative Entropy

2026-06-25abs ↗pdf ↗

Robust Hedging Valuation Adjustment under Liquidity--Demand Stressq-fin.RM

Develops a robust hedging valuation adjustment measure for dynamic hedging under liquidity-demand stress.

problem Dynamic hedging under liquidity-demand stress

method Define robust HVA as the worst-case expected loss over a relative-entropy neighborhood of the loss distribution generated by simulated rebalancing and maturity-unwind trades.

result Distinguishes fixed-radius convention from fixed benchmark-stress convention and shows wider no-trade bands lower rebalancing costs but raise hedge-error risk.

hedging valuation liquidity stress robustness

2026-06-25abs ↗pdf ↗

The Recalibration Conundrum: Hedging Valuation Adjustment for Callable Claimsq-fin.RM

This paper addresses recalibration issues in hedging callable assets, proposing a new risk-adjusted approach.

problem The mismatch between dynamic hedging theory and practice due to daily recalibration.

method Extends HVA model risk approach to callable assets, focusing on recalibration and model risks.

result Model risk reserves adjusted for exercise decisions may significantly exceed basic valuation differences.

Recalibration Hedging Callable Claims Model Risk Valuation Adjustment

2023-04-04abs ↗pdf ↗