Template:Csa credit support amount calculation: Difference between revisions

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===Calculating your {{csaprov|Credit Support Amount}}===
===Calculating your {{csaprov|Credit Support Amount}}===
How the {{csaprov|IA}} contributes to the {{csaprov|Credit Support Amount}} — being the total amount a {{csaprov|Transferor}} actually has to hand over to the {{csaprov|Transferee}} can be mind-boggling. It pans out like for a given counterparty like so:
How the {{csaprov|IA}} contributes to the {{csaprov|Credit Support Amount}} — being the total amount a {{csaprov|Transferor}} actually has to hand over to the {{csaprov|Transferee}} can be mind-boggling. It pans out like for a given counterparty like so:
*First, take the {{csaprov|Transferee}}’s {{csaprov|Exposure}} - the net [[mark-to-market]] value the {{csaprov|Transferor}} would owe the {{csaprov|Transferee}} under all outstanding {{isdaprov|Transactions}}  if they were [[closed out]] (not counting, of course, the [[CSA]] itself). Call this '''E'''.
#The {{csaprov|Transferee}}’s {{csaprov|Exposure}} - the net [[mark-to-market]] value the {{csaprov|Transferor}} would owe the {{csaprov|Transferee}} under all outstanding {{isdaprov|Transactions}}  if they were [[closed out]] (not counting, of course, the [[CSA]] itself). Call this '''E'''.
*Next, add to E the total {{csaprov|Independent Amount}} {{csaprov|Transferor}} is required to give the {{csaprov|Transferee}}. Call this '''IA<sub>t</sub>'''. E + IA<sub>t</sub> is the total amount you have to hand over as {{csaprov|Credit Support}} if it weren't for ...
#Add to E the total {{csaprov|Independent Amount}} {{csaprov|Transferor}} is required to give the {{csaprov|Transferee}}. Call this '''IA<sub>t</sub>'''. <br>''E + IA<sub>t</sub> is the total amount {{csaprov|Transferor}} would have to hand if it weren’t for ...
*Any {{csaprov|Independent Amount}} the ''other'' dude owes ''you''. This we will call '''IA<sub>r</sub>'''. There’s something faintly absurd both parties exchanging {{csaprov|Independent Amounts}} by [[title transfer]] — they net off against each other — but that’s as may be. Stupider things have happened<ref>[[SFTR]] disclosure, for example.</ref>.  
#Any {{csaprov|Independent Amount}} the {{csaprov|Transferee}} has to pay the {{csaprov|Transferor}}. Call this '''IA<sub>r</sub>'''.<br>''There’s something faintly absurd both parties exchanging {{csaprov|Independent Amounts}} by [[title transfer]] — they net off against each other — but that’s as may be. Stupider things have happened<ref>[[SFTR]] disclosure, for example.</ref>.''
*Any {{csaprov|Threshold}} that applies to the {{csaprov|Transferor}} - being the minimum MTM amount at which it must pony up variation margin in the first place.<br />
#Any {{csaprov|Threshold}} that applies to the {{csaprov|Transferor}} - being the minimum MTM amount at which it must pony up variation margin in the first place.<br />
 
This leaves you with a formula as follows:
This leaves you with a formula as follows:
:''Max[0, E + IA<sub>t</sub> - (IA<sub>r</sub> + Threshold.)''
:''Max[0, E + IA<sub>t</sub> - (IA<sub>r</sub> + Threshold.)''

Revision as of 12:54, 20 January 2017

Calculating your Credit Support Amount

How the IA contributes to the Credit Support Amount — being the total amount a Transferor actually has to hand over to the Transferee can be mind-boggling. It pans out like for a given counterparty like so:

  1. The Transferee’s Exposure - the net mark-to-market value the Transferor would owe the Transferee under all outstanding Transactions if they were closed out (not counting, of course, the CSA itself). Call this E.
  2. Add to E the total Independent Amount Transferor is required to give the Transferee. Call this IAt.
    E + IAt is the total amount Transferor would have to hand if it weren’t for ...
  3. Any Independent Amount the Transferee has to pay the Transferor. Call this IAr.
    There’s something faintly absurd both parties exchanging Independent Amounts by title transfer — they net off against each other — but that’s as may be. Stupider things have happened[1].
  4. Any Threshold that applies to the Transferor - being the minimum MTM amount at which it must pony up variation margin in the first place.

This leaves you with a formula as follows:

Max[0, E + IAt - (IAr + Threshold.)

Let's plug in some numbers. Say:

  • Exposure is 10,000,000
  • The IAt you owe him: 2,000,000
  • IAr he owes you: 0
  • Your Threshold: 5,000,000

Your Credit Support Amount is therefore 10,000,000 + 2,000,000 - (0 + 5,000,000) = 7,000,000.

Now, whether you have to pay anything or receive anything as a result — whether there is a Delivery Amount or a Return Amount, in other words — that depends whether the Credit Support Amount is greater or smaller than your prevailing Credit Support Balance.

  1. ↑ SFTR disclosure, for example.
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