Counterparty risk and funding: immersion and beyond (Q331358)

The main theoretical contribution of the paper is to establish the mathematical well-posedness of the full and reduced total valuation adjustment (TVA) backward stochastic differential equations (BSDEs), under a relaxed dependence assumption between the couterparties first-to-default time and the market reference filtration. These results, from practical point of view, allow one to model a TVA process as a solution to the simple, reduced TVA-BSDE, including in wrong-way and gap risk setups such as the dynamic Marshall-Olkin model to deal with TVA on credit derivatives.