Hedging valuation adjustment gets cold shoulder from banks
Dealers back the idea of charging for hedging costs – including FX options – but not as part of a new XVA
The market shocks set off by Covid-19 last year supplied striking proof that the costs of hedging and re-hedging derivatives trades could be, in the words of one senior banker, “phenomenal”. Yet these costs are not always baked into the price of the trade at the outset, hitting banks when bid-offer spreads widen.
Most dealers agree that hedging costs should be included in the price of a trade, but opinions differ when it comes to how they should be treated: as a transparent add-on to the price
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact customer services - www.fx-markets.com/static/contact-us, or view our subscription options here: https://subscriptions.fx-markets.com/subscribe
You are currently unable to print this content. Please contact customer services - www.fx-markets.com/static/contact-us to find out more.
You are currently unable to copy this content. Please contact info@fx-markets.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@fx-markets.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@fx-markets.com
More on Trading
JP Morgan’s new way to trade FX overlays
Hybrid execution method allows clients to put dealers in competition via a single trading agreement
Morgan Stanley back on top for US insurer FX forwards
Counterparty Radar: Bank added $1.7bn with Mass Mutual in Q4 to overtake Citi as biggest dealer
Nomura names new global head of FX structuring
Rana Dasgupta will have dual responsibility for global FX structuring and Asia-ex Japan structuring
Hidden Road ready for rush hour after FCM approval
Prime broker is trading “trillions” of notional with “a few hundred” counterparties in FX and crypto
How banks are adapting to all-powerful pod funds
Growth of multi-manager funds such as Citadel, Millennium and Balyasny has forced dealers to switch tactics in an attempt to preserve profits
Invesco more than triples size of its FX options book
Counterparty Radar: Manager’s portfolio exceeded $5 billion notional in Q4
RMB vol returns as hedge funds take barrier trade profits
Unwinds of exotic positions saw vol jump 72% after surprise PBoC move last week
FX algo firms see rise in matched principal trading
FX Markets Asia: Users more willing to trade passively in low-vol environment
