KVA Comparative Study: A Comparative Study of Capital Costs and KVA Under Different Regulatory Methodologies

Location: Sydney, NSW

Duration: 5 months

Proposed start date: December or January

Keywords: Quantitative Finance, C/C++ programming;  Excel, Counterparty Credit Risk Models

Please note: Due to funding requirements, students must have Australian Citizenship or Permanent Residency to apply. Any applicants not meeting this requirement will be ineligible for this project.

Project Background

In March 2014, the Basel Committee on Banking Supervision (BCBS) published a Standardised Approach (SA-CCR) for measuring exposure at default (EAD) for counterparty credit risk (CCR). SA-CCR replaces the current non-internal model approaches, the Current Exposure Method (CEM) of 1995 and the Standardised Method (SM) of 2005. The majority of banks use CEM, as relatively few firms have Internal Model Method (IMM) approval from their regulator. This study will provide a survey of the alternative models and compare their impact on capital requirements. Further, it will review approaches for forecasting future capital requirements and incorporating cost of capital into profitability analysis via the Capital Value Adjustment (KVA) risk measure.

We are seeking a post grad intern with expertise in quantitative finance and strong software development skills to assist in implementation and evaluation of the models in the proposed study.

Research to be Conducted

Review and understand Basel specifications for CEM, SA-CCR and IMM methodologies.

Review and understand Quantifi proprietary models for KVA under CEM, SA-CCR and IMM methodologies.

Produce sample results for a representative set of trades using Quantifi software. Validate results in comparison to model specifications

Skills Required

We are looking for a PhD student with the following skills:

ESSENTIAL

  • Quantitative Finance
  • C/C++ programming

DESIRABLE

  • Excel Counterparty
  • Credit Risk Models

Expected Outcomes

Produce sample results contributing to the production of a whitepaper, surveying alternative KVA models and comparing results.

The proposed research will assist Quantifi in validation of their proprietary models and in increasing their credibility in relation to alternative models that are more computionally expensive.

Additional Details

The intern will receive $3,000 per month of the internship, usually in the form of stipend payments.

It is expected that the intern will primarily undertake this research project during regular business hours, spending at least 80% of their time on-site with the industry partner.  The intern will be expected to maintain contact with their academic mentor throughout the internship either through face-to-face or phone meetings as appropriate.

The intern and their academic mentor will have the opportunity to negotiate the project’s scope, milestones and timeline during the project planning stage.

Applications Close

 12 December 2018

Reference

INT – 0559