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This book can be read in two ways. Firstly it can be read as a manifesto for the change in derivative valuation and the move away from the pure Black-Scholes-Merton framework. This is a controversial topic and will no doubt remain so for some time. The book can also be read as a practical guide to the calculation of valuation adjustments and it is therefore up to the reader what model elements are selected from those discussed.

The book is organised into five main parts. Part I discusses models for counterparty credit risk and CVA, while Part II discusses FVA models as an extension to CVA model. The regulatory capital framework and KVA model are introduced in Part III. The implementation of XVA models is discussed in part IV and this section of the book is aimed to be a practical guide for those who are building bespoke internal models as well as those who may be buying third-party systems. Finally Part V discusses the management of XVA principally through active hedging programmes.