Introduction

Abstract

The 2008 financial crisis, triggered by the Lehman Brothers default, has led to profound changes in derivatives trading and valuations. These changes are partly driven by the banks in realizing the need to treat credit and funding properly; and further by the widespread enforcement of rules and regulations from Basel III, Central Banks to regulatory authorities. On one side, collateralized derivatives and central clearing have become the trend in promoting derivatives trading transparency; and on the other side, bilateral uncollateralized derivatives coexist with little liquidity in market trading. To integrate all these together, we have to dive deep into the discussion of XVA.