Definition of X-Value Adjustment
What is X-Value Adjustment
In derivative transactions, an x-value adjustment (XVA) is a specific type of adjustment made to the value of a derivative contract to account for changes in the underlying asset or market conditions. The adjustments are made to account for the account funding, credit risk and capital costs.
Derivative contracts are financial instruments that derive their value from an underlying asset or benchmark, such as a stock, commodity or interest rate. The value of a derivative contract can be affected by changes in the underlying asset or market conditions, such as changes in interest rates, currency exchange rates or market volatility.
Derivative Contract Adjustments
To ensure that the value of a derivative contract accurately reflects the current market conditions, x-value adjustments may be made. These adjustments can take into account factors such as changes in interest rates, dividends or other underlying asset values, as well as changes in market volatility or other risk factors.
X-value adjustments are typically made on a regular basis, such as daily or weekly, to ensure that the value of the derivative contract reflects the most up-to-date market conditions. They are an important tool for managing risk in derivative transactions, as they help to ensure that the value of the contract accurately reflects the underlying asset or market conditions.
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