The OIS is chosen here as it reflects the rate for overnight secured lending between banks, and is thus considered a good indicator of the interbank credit markets.
When the exposure is not collateralized then a credit valuation adjustment, or CVA, is subtracted from this value [5] (the logic: an institution insists on paying less for the option, knowing that the counterparty may default on its unrealized gain).
[12] While the CVA reflects the market value of counterparty credit risk, additional Valuation Adjustments for debit, funding cost, regulatory capital and margin may similarly be added.
Relatedly, LVA represents the specific liquidity adjustment, while CollVA is the value of the optionality embedded in a CSA to post collateral in different currencies.
Per the IFRS 13 accounting standard, fair value is defined as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
One notable impact of this standard, is that bank earnings are subject to XVA volatility, [23] (largely) a function of changing counterparty credit risk.