AVA = Additional Valuation Adjustments

AVA refers to the adjustments applied to fair value measurements under the Prudential Valuation framework (introduced by Basel III and the EBA - European Banking Authority). These adjustments ensure that valuations reflect a conservative and prudent approach, particularly for regulatory capital purposes.

AVA Components

- Market Price Uncertainty (MPU): AVA adjustments account for uncertainty in market prices due to bid-ask spreads, illiquidity, or price estimation issues.

-  Close-out Costs (CoC): AVA includes adjustments for the expected transaction costs incurred when unwinding a position, particularly in stressed market conditions.