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Template:Csa Events of Default summ: Difference between revisions
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Which is nice. This is not a problem for the English law Credit Support Annexes that are {{isdaprov|Transactions}}. | Which is nice. This is not a problem for the English law Credit Support Annexes that are {{isdaprov|Transactions}}. | ||
=====Including “comprehensive” Termination Events===== | =====Including “comprehensive” Termination Events===== | ||
Consider expanding of the {{{{{1}}}|Default}} provision to include “{{isdaprov|Termination Event}}s where all {{isdaprov|Transactions}} are {{isdaprov|Affected Transaction}}s”. This is as per Section 3.2 of the 2001 ISDA Margin Provisions which recommend that Paragraph {{{{{1}}}|6}} of the {{tag|CSA}} should apply where all {{isdaprov|Transactions}} are closed out following an {{isdaprov|Event of Default}} or “{{{{{1}}}|Specified Condition}}” — the latter of which is defined to include the {{isdaprov|Termination Events}} listed under the {{isdama}}. All {{isdaprov|Transaction}}s would likely be {{isdaprov|Affected Transactions}} should a {{isdaprov|Credit Event Upon Merger}} or {{isdaprov|Additional Termination Event}} occur. | Consider expanding of the {{{{{1}}}|Default}} provision to include “{{isdaprov|Termination Event}}s where all {{isdaprov|Transactions}} are {{isdaprov|Affected Transaction}}s”. This is as per Section 3.2 of the 2001 ISDA Margin Provisions which recommend that Paragraph {{{{{1}}}|6}} of the {{tag|CSA}} should apply where all {{isdaprov|Transactions}} are closed out following an {{isdaprov|Event of Default}} or “{{{{{1}}}|Specified Condition}}” — the latter of which is defined to include the {{isdaprov|Termination Events}} listed under the {{isdama}}. All {{isdaprov|Transaction}}s would likely be {{isdaprov|Affected Transactions}} should a {{isdaprov|Credit Event Upon Merger}} or {{isdaprov|Additional Termination Event}} occur. | ||
The {{vmcsaprov|default}} paragraph explains how you value the {{vmcsa}} itself — being a {{isdaprov|Transaction}} in its own right, of course — when closing out an {{isdama}}. The basic gist is that you treat the {{vmcsaprov|Credit Support Balance}} as of the {{isdaprov|Early Termination Date}} — being the total value of the {{vmcsaprov|Credit Support}} you have ponied up at any time — as an {{isdaprov|Unpaid Amount}}, rather than treating is as a contingent return obligation, the present value of which would go into the {{isdaprov|Close-Out Amount}} (or {{isdaprov|Loss}}, or {{isdaprov|Market Quotation}}, if you still labour under an antediluvian {{1992ma}}). | |||
====Why do {{ttcsa}}s reference “Unpaid Amounts”?==== | |||
A {{ttcsa}} is technically a {{isdaprov|Transaction}} under the {{isdama}} in its own right — that is deep [[ISDA]] lore — but it is still a ''weird'' {{isdaprov|Transaction}}, and the standard “[[replacement cost]]” of valuation method doesn’t work brilliantly: rather than having defined payments upfront, each of which can be valued and discounted back to now to reveal a [[present value]], payment obligations under a {{ttcsa}} depend on the aggregate discounted cashflows of all the ''other'' {{isdaprov|Transaction}}s under the {{isdama}}. So good luck determining, in the abstract, the [[replacement cost]] of something like that. | |||
The good news is you don’t have to: the {{{{{1}}}|Credit Support Balance}} isn’t calculated by reference to its own discounted future cashflows: rather, it is just the inverse of the aggregate present value of all the other {{isdaprov|Transactions}} under the {{isdama}}. So the “[[replacement cost]]” on any day is just the prevailing value of the {{{{{1}}}|Credit Support Balance}}. It’s easier to treat that as an {{isdaprov|Unpaid Amount}} (none of this tedious mucking about with replacement costs and so on). | |||
But that means you have to deem the {{isdaprov|Close-Out Amount}} (or {{isdaprov|Market Quotation}}/{{isdaprov|Loss}}, if under a {{1992ma}}) as zero.<ref> | |||
Spoddy point: “{{isdaprov|Loss}}” in the {{1992ma}} ''includes'' the “{{isdaprov|Unpaid Amount}}” concept in the definition: “{{isdaprov|Loss}} includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant {{isdaprov|Early Termination Date}} and not made...” </ref> | |||