It is a type of cross value adjustment/ x-value adjustment (XVA) that constitute the part of cost relating to initial margin (IM) posted for a derivative instrument. The cost of this margin must be taken into account so that the derivatives trading could be profitable and remain as such. Margin valuation adjustment is one part of the funding cost (the other part of funding valuation adjustment) associated with cleared trades (where initial margin is required) and non-cleared trades (where initial margin is gradually considered and factored in). Margin valuation adjustment compensates traders and market makers for this funding cost.
March 2, 2024
