82,976
edits
Template:Deliveryandreturnamounts: Difference between revisions
Template:Deliveryandreturnamounts (view source)
Revision as of 14:54, 31 December 2019
, 31 December 2019no edit summary
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
| Line 1: | Line 1: | ||
===Calculating {{{{{1}}}prov|Delivery Amount}}s and {{{{{1}}}prov|Return Amount}}s=== | ===Calculating {{{{{1}}}prov|Delivery Amount}}s and {{{{{1}}}prov|Return Amount}}s=== | ||
Note that under a {{vmcsa}} there is no {{csaprov|Independent Amount}} or {{csaprov|Threshold}}, so there is no need for a {{csaprov|Credit Support Amount}} (which is {{csaprov|Exposure}} adjusted by applicable {{csaprov|Independent Amount}}s and {{csaprov|Threshold}}s) — everything keys off the plain old {{vmcsaprov|Exposure}}. | |||
Unless, that is, you have retrofitted your {{vmcsa}} to include {{vmcsaprov|Independent Amount}}s. The below assumes you ''have'' done that. Because some genius in your [[credit department]] will have decided this is really important. If you ''haven’t'', it is a bit easier: just substitute “{{csaprov|Credit Support Amount}}” for “{{vmcsaprov|Exposure}}”. For more on this stimulating topic, see {{vmcsaprov|Credit Support Amount (VM/IA)}}. | |||
===={{{{{1}}}prov|Delivery Amount}}s==== | ===={{{{{1}}}prov|Delivery Amount}}s==== | ||
'''First''': work out your '''{{{{{1}}}prov|Credit Support Amount}}'''. This is: <br> | '''First''': work out your '''{{{{{1}}}prov|Credit Support Amount}}'''. This is: <br> | ||
| Line 14: | Line 17: | ||
So yesterday you met a [[margin call]] by delivering a [[bond]] the standard [[settlement cycle]] for which means it won’t arrive till the day after tomorrow. How is this “in-flight collateral” treated for the purpose of today’s [[margin call]]? It’s treated as having already been made. However, if your [[counterparty]] fails in the meantime (before the [[bond]] has settled, and assuming ultimately it never does), it would count as an {{isdaprov|Unpaid Amount}} which would factor into your [[Close-out Amount - ISDA Provision|close-out calculation]]. | So yesterday you met a [[margin call]] by delivering a [[bond]] the standard [[settlement cycle]] for which means it won’t arrive till the day after tomorrow. How is this “in-flight collateral” treated for the purpose of today’s [[margin call]]? It’s treated as having already been made. However, if your [[counterparty]] fails in the meantime (before the [[bond]] has settled, and assuming ultimately it never does), it would count as an {{isdaprov|Unpaid Amount}} which would factor into your [[Close-out Amount - ISDA Provision|close-out calculation]]. | ||
At first blush this seems an odd result, but the risk is a time value risk associated with the collateral, not a counterparty risk per se. You accepted it when you agreed to {{{{{1}}}prov|Eligible Credit Support}} with a long a [[settlement cycle]] in the first place. If you don't want that time-value risk, don’t agree to collateral with a long [[settlement cycle]]. | At first blush, this seems an odd result, but the risk is a time value risk associated with the collateral, not a counterparty risk per se. You accepted it when you agreed to {{{{{1}}}prov|Eligible Credit Support}} with a long a [[settlement cycle]] in the first place. If you don't want that time-value risk, don’t agree to collateral with a long [[settlement cycle]]. | ||
====Picturesque speech==== | ====Picturesque speech==== | ||
''Bonus learning for free: In a | ''Bonus learning for free: In arithmetic, a sum being ''subtracted'' is the “[[subtrahend]]” and the sum it is being subtracted from is the “[[minuend]]”.'' <br> | ||