CoachPrudent valuation values fair-valued positions at the price at which the bank is 90% confident it could exit them. The additional valuation adjustments (AVAs) are the differences between fair value and prudent value, by category (market price uncertainty, close-out costs, model risk and others); they are deducted from common equity.
Ejemplos
Example 27.12 (The AVA of the book)
With contributors’ volatilities dispersed by 2.0 and 2.5 basis points around the consensus, the market price uncertainty AVA, fair value less the 90% confidence exit value, is USD 190 578 for the payers and 232 964 for the receivers; summed after the 50% aggregation factor, 211 771. The simplified approach, 0.1% of the absolute fair values (USD 6.87 million), would give 6 872: for an option book whose value is small against its risk, the simplified figure understates the uncertainty.