  This article prices OTC derivatives with either an exogenously determined
initial margin profile or endogenously approximated initial margin. In the
former case, margin valuation adjustment (MVA) is defined as the liability-side
discounted expected margin profile, while in the latter, an extended partial
differential equation is derived and solved for an all-in fair value,
decomposable into coherent CVA, FVA and MVA. For uncollateralized customer
trades, MVA can be transferred to the customer via an extension of the
liability-side pricing theory. For BCBS-IOSCO covered OTC derivatives, a market
maker has to charge financial counterparties a bid-ask spread to transfer its
funding cost. An IM multiplier is applied to calibrate to external IM models to
allow portfolio incremental pricing. In particular, a link to ISDA SIMM for
equity, commodity and fx risks is established through the PDE with its vega and
curvature IM components captured fully. Numerical examples are given for swaps
and equity portfolios and offer a plausible attribution of recent CME-LCH basis
spread widening to elevated MVA accompanying dealers' hedging of customer
flows.
