Electronic copy available at: http://ssrn.

com/abstract=1785262
In the Balance
Version 1.0, 13 Mar 2011
Christoph Burgard
Quantitative Analytics
Barclays Capital
5 The North Colonnade
Canary Wharf
London E14 4BB
United Kingdom
christoph.burgard@barclayscapital.com
+44 (0)2077731462
Mats Kjaer
Quantitative Analytics
Barclays Capital
5 The North Colonnade
Canary Wharf
London E14 4BB
United Kingdom
mats.kjaer@barclayscapital.com
+44(0)2031341191
Disclaimer: This paper represents the views of the authors alone, and not the views of Barclays
Capital or Barclays Bank Plc.
Electronic copy available at: http://ssrn.com/abstract=1785262
Abstract
Funding and counterparty credit risk adjustments are integral to calculating the true
value of derivatives positions. Based on a recently developed unied framework for funding
and bilateral counterparty credit risk and their associated hedging strategies, we describe
how a central funding unit can interface with the derivatives desks and specify the resulting
cash ows between them. We also specify, how the funding of the derivatives and hedge
positions can impact the balance sheet and how the balance sheet could be managed to
neutralise this impact, resulting in a reduction of the funding costs.
1 Introduction
Funding and bilateral counterparty credit risk of derivatives positions are intimately related
to each other. In Burgard and Kjaer [1], we have developed a unied framework that combines
both eects. On one hand, the framework species, how a positive cash account related to
the hedging strategy of an uncollateralised derivative can be used to fund the repurchase of
the issuers own bonds in order to hedge out its own credit risk, justifying the inclusion of a
debt value adjustment (DVA) in a bilateral counterparty credit value setting. On the other
hand, the framework also includes the funding costs associated with a negative cash account,
thus yielding an additional funding cost adjustment to the derivatives price. The size of the
funding cost adjustment depends on the specic way the funding is achieved.
It is a widespread practise among banks with major un-collateralised derivatives positions
to operate an internal counterparty credit trading (CCT) desk, which, against payment of a
credit value adjustment (CVA), insures the derivatives desks against losses on the derivatives
positions caused by counterparty defaults. With the framework developed in Burgard and
Kjaer [1] we show here how such an internal setup can be extended to include the DVA and
funding costs in a consistent way. We outline, how a central funding unit (CFU) can be
established that provides and receives funding to and from the derivatives desk at the risk
free rate in exchange for a funding value adjustment.
Finally we establish a link between the funding cost adjustment and the balance sheet of the
issuer and demonstrate it in a simple balance sheet model. We demonstrate that balance sheet
eects of derivatives assets can decrease the eective funding costs. We also show that if the
balance sheet can actively be managed such that the impact of the funding of the derivative
position is neutralised, the funding cost adjustment term can be reduced to zero.
This paper is organised as follows: Section 2 reviews the unied framework for bilateral
counterparty risk and funding costs presented in Burgard and Kjaer [1]. This is followed
in Section 3 by a description of how a funding desk could be setup and operate. Section 4
present a strategy for reducing the funding cost adjustment to zero by trading own bonds of
dierent seniority. Finally we conclude in Section 5.
2 Review of the unied framework for bilateral counterparty
risk and funding adjustments
In Burgard and Kjaer [1], we model the hedging strategy for derivative contracts including
the risk of defaults of the issuer B (own credit) and the counterparty C. The derivative
is assumed to be a derivative on an underlying asset S with risk free value V (S, t), where
the sign of V is dened as seen from the counterparty. Here, risk-free means without credit
risks to the counterparty or the issuer and without potential funding costs. V does, however,
include the market risk of the underlying asset S. The risky value

V , in contrast, is dened
to include the credit risks and funding adjustments.
1
The underlying processes for the asset
process S and the zero-recovery bonds P
B
and P
C
of the issuer and counterparty, respectively,
1
As such, value and sign of

V corresponds, at the start of the trade, to the premium that the counterparty
pays to the issuer and, during the live of the trade, to the cash account of the hedging strategy of the issuer
as discussed later.
1
are assumed to follow log-normal process for S and independent jump-to-default processes
dJ
B
and dJ
C
for the issuer and countparty, respectively:
dS
S
= dt +dW (1)
dP
B
P
B
= r
B
dt dJ
B
(2)
dP
C
P
C
= r
C
dt dJ
C
(3)
The jump-to-default processes dJ
B
and dJ
C
jump from 0 to 1 upon default of the issuer and
counterparty, respectively. For simplicity, the framework assumes deterministic rates and
default intensities. As such, it does not include any convexity eects between funding rates
and market factors, as discussed in Piterbarg [3], but could be extended to do so.
The bonds P
B
and P
C
are zero-recovery bonds for simplicity. Zero-recovery bonds together
with risk free assets can be used as building blocks to replicate more complicated structures,
e.g. bonds with recovery. In Section 4, we will consider a case where we include bonds of
dierent seniority (and therefore recovery) in order to neutralise the balance sheet impact of
the derivatives.
The boundary condition of the risky value of the derivative

V (S, t, J
B
, J
C
) upon default of
the issuer or counterparty are dened as

V (t, S, 1, 0) = M

(t, S) +R
B
M
+
(t, S) B defaults rst

V (t, S, 0, 1) = R
C
M

(t, S) +M
+
(t, S) C defaults rst
(4)
Contractual details will determine, which values for the close-outs M should be used upon
default of the issuer or counterparty.
In Burgard and Kjaer [1] we model a replication strategy of holding amounts of the un-
derlying asset S,
C
amounts of the zero-recovery bonds P
C
of the counterparty, and (t)
amounts of cash. It is shown, that this cash, if positive, can be used to fund the (re-)purchase
of the required number
B
of the issuers own zero-recovery bonds P
B
needed to hedge out
the issuers credit risk on the derivative position. Any remaining cash
F
=

V
B
P
B
, if pos-
itive, is being used to purchase risk-free assets (yielding rate r), so as not to spoil this hedge
position, and, if negative, has to be nanced as usual from an external funding provider at a
funding rate r
F
. The cost of this funding is included in the cost of the hedging strategy and
therefore the risky price

V . It shall be noted, that while the risk of the issuers default on the
derivative contract is hedged out by the strategy, that the risk of the funding provider to the
issuers credit, is not, and the funding provider correspondingly earns the spread s
F
= r
F
r
to be compensated for this risk. The hedge ratios found in Burgard and Kjaer [1] are:
=
S

V , (5)

B
=

V (M

+R
B
M
+
)
P
B
, (6)

C
=

V (M
+
+R
C
M

)
P
C
, (7)

F
= M

+R
B
M
+
(8)
2
These hedge ratios then result in the following PDE for the risky value of the derivative:

V +A
t

V r

V = s
F
M

+ (
B
+
C
)

B
(R
B
M
+
+M

C
(R
C
M

+M
+
), (9)
where
A
t
V
1
2

2
S
2

2
S
V + (q
S

S
)S
S
V (10)
s
F
r
F
r (11)

B
r
B
r (12)

C
r
C
r (13)
and q
S
is the net share position nancing cost and
S
is the dividend income.
Two cases for the close-out amount M are considered in Burgard and Kjaer [1]: one where M
corresponds to the risky value, i.e. M(t, S) =

V (t, S, 0, 0), and one where it corresponds to
the risk-less value M(t, S) = V (t, S, 0, 0). The M = V (t, S, 0, 0) case more closely describes
contracts that follow the ISDA master agreements of 1992 and 2002, albeit even with these
agreements legal uncertainties remain with respect to the inclusion of funding costs and own
credit adjustment (alias DVA) of the non-defaulting party in the calculation of the close-out
amount, as well as the potential inclusion of set-os against other obligations between the
counterparties. For the following discussion we will focus on the M(t, S) = V (t, S, 0, 0) case.
For the M = V case, splitting the risky value into the riskless value and adjustment,

V =
V +U, Burgard and Kjaer [1] obtain the following integral representation for U:
U(t, S) = CV A+DV A+FCA (14)
where
CV A = (1 R
C
)

T
t

C
(u)D
r+
B
+
C
(t, u)E
t

(u, S(u))

du (15)
DV A = (1 R
B
)

T
t

B
(u)D
r+
B
+
C
(t, u)E
t

V
+
(u, S(u))

du (16)
FCA =

T
t
s
F
(u)D
r+
B
+
C
(t, u)E
t

(u, S(u))

du. (17)
The rst term is often referred to as the (modied) unilateral CVA, the second term as the
DVA and the third term is a funding cost adjustment, which we shall call FCA. It is clear
from this representation that while both, the DVA as well as the FCA are related to the credit
position of the issuer, they do not double count the issuers credit but capture exposures of
the mark-to-market value of the derivative of opposite sign and as such are opposite sides of
the same coin. The DVA term itself can be seen as a funding benet term, in the sense that it
arises from the issuer using a positive cash account to buy back his own bonds, thus hedging
out his own credit risk on the derivative position while earning its spread on it.
In the following chapter we will discuss, how this representation can practically be imple-
mented as contractual obligations between derivatives desks and CCT and CFU units and
what value the funding spread s
F
should attain.
3
3 Practical Setup
Equation (14) deserves some discussions.
First, it should be noted, that the hedging strategy leading to this equation involves the issuer
repurchasing its own bonds. It does not involve any dealings in its own CDS. The term
B
is the spread of the yield of a zero-recovery bond over the risk free rate. It is not the hazard
rate derived from the CDS market. Thus, if there is a basis between bonds and CDS for the
issuer B, it is the bond market that counts for determining
B
used in the DVA and FCA
terms in equations (16) and (17).
Second, it is instructive to discuss the hedge ratios obtained for the M = V case, for which
equations (5) read
=
S
V +
S
U, (18)

B
=
U + (1 R
B
)V
+
P
B
, (19)

C
=
U + (1 R
C
)V

P
C
, (20)

F
= V

+R
B
V
+
(21)
For positive V, the combination of zero-recovery zero-coupon bonds of value (1R
B
)V
+
and
R
B
V
+
amount of cash invested in risk free assets, replicates an investment of value V
+
in a
zero-coupon bond with recovery R
B
2
. Thus, for the issuer to hedge its own credit risk on
the risk free part V
+
of the option value, it could as well invest the full amount V
+
in bonds
with recovery R
B
. The contributions of U to the hedge ratios, on the other hand, come from
the fact that upon default the close-out amount of V diers from the (risky) value of the
derivative just prior to default by the amount U, because the credit and funding adjustments
for the trade disappear upon default of the counterparty or the issuer. Thus, the credit risk
on the full amount of U needs to be hedged out, and this is achieved by means of taking
positions in zero-recovery bonds of B and C of value U.
Third, the spread s
F
in the FCA term (17) is the spread paid for funding negative balances
on the cash account. In Burgard and Kjaer [1] we mention two cases, which we want to
discuss here in more detail.
3.1 Case where derivative can be used as collateral
In principle the derivative itself could be used as collateral for the funding required for negative
balances on the cash account. The cash account is negative when the value V is negative (to
the counterparty), thus positive (V ) to the issuer. It is an asset for the issuer, which in
principle, could be ring-fenced and used as security for the required funding. To be precise, the
negative cash balance
F
that needs funding is V

, i.e. the risk-free value of the derivative,

if V is negative. While the value of the derivative to the issuer is the risky value (

V ), its
close-out value is (V ), so it could indeed be used to secure the required amount of funding
of V if no haircut were applied. Now in practise, there are a number of technical diculties
to be taken into account when considering whether and how the derivative could be used as
2
Where recovery is on the risk-free value.
4
collateral. One of them is that the value of the derivative (and the amount of cash requiring
funding) changes constantly. Another one is, that, in general, one should expect a healthy
haircut to be applied between the value of the derivative collateral and the secured funding
amount. In the extreme case, though, where the derivative can be used as collateral with zero
haircut and the secured funding rate is the risk free rate, the spread s
F
and, correspondingly,
the FCA of equation (17) disappears and we are left with the rst two terms for the adjustment
U in equation (14), representing the usual bilateral CVA as described in many papers (e.g. see
Gregory [2]), but its use being well justied in our framework through the hedging strategy of
repurchasing the issuers own bonds from its positive cash account. At the same time, since
the derivative has been pledged as collateral when the cash accounts is negative, it does not
appear as an asset on the balance sheet of the issuer.
3.2 Case where derivative cannot be used as collateral
If the derivative cannot be used as collateral, we consider in Burgard and Kjaer [1] the case
where the funding for a negative balance in the cash account is done unsecured through the
issuers usual funding channels. In this case, s
F
does not vanish. This may be the most
realistic case in practice. As discussed in [1], if s
F
is the normal unsecured senior funding
rate then it can be linked to the spread
B
via the relation s
F
= (1 R
B
)
B
. The DVA and
FCA can then be combined into a single term, which we may refer to as the funding value
adjustment (FVA):
FV A = DV A+FCA (22)
so

V = V +CV A+FV A (23)

where
CV A = (1 R
C
)

T
t

C
(u)D
r+
B
+
C
(t, u)E
t

(u, S(u))

du, (24)
FV A = (1 R
B
)

T
t

B
(u)D
r+
B
+
C
(t, u)E
t
[V (u, S(u))] du. (25)
(26)
This leads to the following interpretation of the equation and natural split between derivatives
desk, CCT and CFU units as depicted in gure 1: when the derivatives desk enters into the
contract with the counterparty and receives premium

V it pays the modied unilateral CV A
as premium to the CCT desk in exchange for getting protection on counterparty risk, i.e.
CCT agrees to pay the derivatives desk (1 R
C
)V

if the counterparty defaults rst. The

CV A in equation (24) is the expectation value of this protection payout, discounted by the
risky discounting factor because it is conditional to issuer and counterparty surviving up to
the point of default. At the same time, the derivatives desk enters into a funding agreement
with the CFU desk. The agreement is that the CFU desk will provide/receive funding at the
risk free rate r of the risk-free mark-to-market value V to/from the derivative desk as long
as neither the counterparty nor the issuer has defaulted. So the cashow each day will be
V rdt from CFU to derivatives desk and new deposit of dV from derivatives desk to the CFU
5
Counterparty
V
^
V
Derivatives
Desk
CCT
CFU
CVA
FVA
Pays loss if
counterparty
defaults
uni
Provides funding of
V
at risk free rate
mod
Figure 1: Cashows between derivatives, Counterparty Risk Trading (CCT ) and Economic
Funding Unit (CFU ) desks.
desk. For this funding arrangement, the derivatives desk will pay the CFU desk the premium
FVA in equation (25) at the start of the trade. This FVA term is the expectation value
of the present value of the cost that CFU encounters for providing/receiving the funding
on V at the risk free rate rather than the funding rate r
F
through the life of the trade,
i.e. it is the funding spread times the expected mark-to-market value integrated over time,
discounted by the risky discount factor, because, again, funding is conditional on both issuer
and counterparty surviving up to that point.
The advantages of the setup in Figure 1 are that the hedging of the funding risk and counter-
party credit risk are done centrally by the CFU and CCT units rather than by each derivatives
desk, and can take portfolio and netting eects into account. Moreover, as soon as the deriva-
tives desk has paid the CVA and FVA charges, it does not have to care about funding costs
or counterparty risk. On a practical level, only the risk-systems of the CCT and CFU desks
need to be aware of funding curves and credit risk, whereas the risk-system of the derivatives
desk can be spared such complexities.
Table 1 summarizes the positions the derivatives, CCT and CFU desks take.
It is worthwhile discussing the case where

V is negative, i.e. out-of-the-money for the coun-
terparty but in-the-money for the issuer, and the issuer defaults. In this case, just prior to
default, the cash account is negative and CFU is providing funding of V

at risk free rate r

to the derivatives desk. CFU itself gets the funding on this amount from the external funding
provider, paying r
F
. If the issuer then defaults, the derivatives desk will settle the derivative
at V

with the counterparty, i.e. receive V

, for the M = V case that we are considering

6
Desk Under- Own bonds Cpty Bonds Unsecured Risk
lying funding free
Total Issuer
S

V
(1R
B
)V
+
+CV A+FV A
P
B
(1R
C
)V

+CV A+FV A
P
C
V

R
B
V
+
Derivatives
S
V 0 0 0 0
CFU
S
FV A
(1R
B
)V
+
+FV A
P
B
FV A
P
C
V

R
B
V
+
CCT
S
CV A
CV A
P
B
(1R
C
)V

+CV A
P
C
0 0
Table 1: Hedge positions for the derivatives, CCT and CFU desks and for the issuing insti-
tution as a whole.
here. The external funding provider, on the other hand, being a senior creditor, will only
receive R
B
(V

) on his funding, so loosing (1 R

B
)(V

). The external funding provider

is compensated for this potential loss by receiving the spread s
F
while the issuer was alive.
The position of the issuer upon its default, i.e. getting V

for the derivative and paying

R
B
(V

) to the funding provider, is a positive (1 R

B
)(V

), which goes towards the

recovery of the bondholders of the issuer. So the following picture arises: the FCA term of
equation (17) is the premium for the windfall to the bondholders of the issuer in the case
where the issuer defaults and the derivative has positive value for the issuer. This premium
is a cost that arises while the issuer is alive. This cost is included in the derivatives price

V
charged to the counterparty by means of the funding term in equation (23).
There are two discussion points arising from this interpretation of the funding term and the
potential windfall to the bondholders: rst, derivatives are potential assets and can contribute
to the asset pool upon the issuers default, as in the case just discussed. Therefore, they impact
the balance sheet and should ultimately help to lower the funding costs of the issuer. This
link is hard to make in practise, in particular to quantify the impact of this balance sheet
eect on the funding costs, but in a purely theoretical setting, the impact on the funding
costs via the balance sheet is such, that it compensates the funding term in equation (23).
This can be seen in a simple balance sheet and funding model, which we will discuss next.
3.2.1 Simple model for impact of derivatives asset on balance sheet and funding
Assume that, as in a reduced form credit model, default of the issuer is driven by an instanta-
neous default process with intensity and that, prior to entering into the derivative contract,
the expected recovery upon default is R
0
. In particular, we assume that the expected assets
upon default are A
0
and the expected liabilities are L
0
. Within this simple setup, the funding
spread s
F
of the issuer over the risk free rate that compensates for the expected loss upon its
default is s
F
= (1 R
0
). Thus, the instantaneous funding costs f
0
per unit of time of the
issuer over time dt for his total liability L
0
is
f
0
= (r + (1 R
0
)) L
0
(27)
Let us now add a derivative with positive value d as an asset to the issuer, so get new total
assets of A
1
= A
0
+d
3
and fund the corresponding negative cash by adding a corresponding
3
The positive value d to the issuer corresponds to V

in our previous discussions.

7
liability, giving new total liability of L
1
= L
0
+d. Thus, the expected recovery changes to
R
1
=
A
1
L
1
=
A
0
+d
L
0
+d
(28)
Adding the derivatives asset, assuming the issuer has hedged the market and counterparty
risk, does not change the default intensity of the issuer. Thus, the instantaneous funding
costs after adding the derivatives is
f
1
dt = (r + (1 R
1
))L
1
dt (29)
= r(L
0
+d)dt + (L
1
A
1
)dt (30)
= rL
0
dt +r d dt + (L
0
A
0
)dt (31)
= r d dt +r L
0
dt + (1 R
0
)L
0
dt (32)
= r d dt +f
0
dt (33)
It follows, that while the new liability d draws the new funding spread (1 R
1
) the change
on the recovery and its eect on the funding of the total liabilies results in an eective funding
rate for d that is the risk free rate. Thus, within this balance sheet model the spread s
F
is
zero. While this balance sheet model is somewhat simplistic, it shows, that accounting for
the eects of the derivative asset on the balance sheet and the overall funding position does
have the potential to lower the FCA term - in the extreme case down to 0.
The second discussion point arising from the interpretation of the funding cost adjustment
term is that the reason that the derivative asset and its funding impact the balance sheet
and cause a potential windfall to the bondholders is the constraint of using a single means
of funding for negative values of the cash account of the derivative hedging strategy. This
constraint means that there are not enough degrees of freedom available to monetise the
windfall and corresponding impact on the balance sheet prior to default. One way of
neutralising the impact on the balance sheet is by obtaining funding using the derivative
as collateral, if possible, as discussed in section 3.1, where indeed the funding cost term
vanishes. Another way of doing so is to extend the range of funding instruments available
and thus manage the balance sheet such, that impact of the derivatives asset and its funding
are neutralised, as will be discussed in the following section.
4 Balance sheet management to mitigate funding costs
In this section we show how that if the issuer have two bonds own P
1
and P
2
of dierent
seniority with recovery rates R
1
and R
2
, and is free to trade these bonds to manage the
funding needed for the negative cash positions in such a way that the total impact if its
own default on the funding position vanishes, then the issuer can achieve in eect risk-free
nancing of the cash account associated with the derivatives hedging strategy and the funding
cost adjustment disappears.
We start by changing the setup from Section 2 slightly, so that we have the hedging instru-
ments P
1
, P
2
, P
C
and S. There is no unsecured borrowing, but and all cash is raised by
8
issuing P
1
and/or P
2
bonds. The assets follow the dynamics

dP
1
P
1
= r
1
(t)dt (1 R
1
)dJ
B
dP
2
P
2
= r
2
(t)dt (1 R
2
)dJ
B
dP
C
P
C
= r
C
(t)dt dJ
C
dS
S
= (t)dt +(t)dW,
(34)
where R
1
[0, 1], R
2
[0, 1] and R
1
< R
2
4
. Moreover, neither of the recovery rates R
1
and
R
2
need to equal the derivative recovery rate R
B
.
As before we setup a replicating portfolio given by
=
1
P
1
+
2
P
2
+
C
P
C
+S +
S
+
C
, (35)
where
S
= S is the funding account for the share position and
C
=
C
P
C
is the funding
position for the P
C
bonds. The fact that is replicating implies that =

V and d = d

V
so repeating the delta hedging arguments of Burgard and Kjaer [1] and dening s
1
= r
1
r
and s
2
= r
2
r yield
=
S

V

C
P
C
=

V
C

1
(1 R
1
)P
1
+
2
(1 R
2
)p
2
=

V
B

1
s
1
P
1
+
2
s
2
P
2
+
C

C
P
C
=
t

V +
1
2

2
S
2

2
S

V r

V +(q
S

S
)S.
Furthermore, in order to ensure that all positive or negative cash is invested or raised through
P
1
and P
2
we impose the constraint

1
P
1
+
2
P
2
=

V .
From these equations we can determine
1
and
2
to be

1
=
R
2

V M

R
B
M
+
R
2
R
1
(36)

2
=
M

+R
B
M
+
R
1

V
R
2
R
1
, (37)
which implies the following pricing PDE

V +A
t

V r

V = s
1
R
2

V M

R
B
M
+
R
2
R
1
+s
2
M

+R
B
M
+
R
1

V
R
2
R
1

C
(M
+
+R
C
M

).
(38)
If we furthermore assume zero basis between the bonds (i.e. s
1
= (1 R
1
)
B
and s
2
=
(1 R
2
)
B
), then (38) simplies further to

V +A
t

V r

V =
B
(R
B
M
+
+M

)
C
(M
+
+R
C
M

), (39)
4
Thus, this is a generalisation of the previous setup. In particular, negative cash can be funded by con-
structing a portfolio of two issuer bond positions of dierent seniority.
9
which by Section 3.1 implies nancing the negative cash account at the risk-free rate r.
In particular the strategy involves issuing the senior P
2
-bonds and use the proceeds to re-
purchase the junior and hence higher yielding P
1
bonds. The excess return generated by
this strategy exactly osets the additional funding costs, so the net-nancing rate becomes r.
At the same time, there is no windfall to the bondholders in the case of default of the issuer
while V (and the cash account) is negative. Table 2 summarises the total bond position at
the issuers own default, which matches perfectly the value of the derivative at that point as
dened in equation (4).
P
1
position
R
1
R
2

V R
1
M

R
1
R
B
M
+
R
2
R
1
P
2
position
R
2
M

+R
2
R
B
M
+
R
1
R
2

V
R
2
R
1
Total position M

+R
B
M
+
Table 2: Value of the issuers P
1
and P
2
bond positions post own default.
So if the issuer is able to oset the impact of the derivative and its funding on the balance
sheet with a combination of going long and short its own bonds of dierent seniority, then it
can reduce the funding cost term to zero.
5 Conclusion
First we showed how valuing derivatives taking funding costs and counterparty risks into
account leads to a derivative valuation formula

V = V + CV A + FV A. We then propose
that the derivative issuer could setup a separate funding desk which task is to manage the
FVA in a similar way that counterparty risk trading desks currently manage the CVA. This
is followed by a short description on how such a funding desk would operate, including the
hedges it would use.
Second we proved that the issuer is able to reduce the FCA to zero by going long and short
its own bonds of dierent seniority.
Acknowledgements
The authors would like to thank Tom Hulme and Vladimir Piterbarg for useful comments
and suggestions.
References
[1] C. Burgard, M. Kjaer. PDE representations of options with bilateral counterparty risk
and funding costs. Submitted. http://ssrn.com/abstract=1605307.
[2] J. Gregory. Being Two-faced over Counterpartyrisk. Risk, February 2009.
[3] V. Piterbarg. Funding beyond discounting: Collateral agreements and derivatives pricing.
Risk, Vol. 2, 97-102, 2010.
10