Template:Csa credit support amount calculation: Difference between revisions

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===Calculating your {{csaprov|Credit Support Amount}}===
===Calculating your {{{{{1}}}|Credit Support Amount}}===
How the IA contributes to the Credit support Amount — being the amount one actually has to hand over of a {{csaprov|Valuation Date}} can be mind-boggling. It pans out like for a given counterparty like so:
Superficially things are quite different between the {{csa}} and the {{vmcsa}}, but this all boils down to the fact that the {{vmcsa}} is ''meant'' to be a zero-threshold, [[variation margin]]-only affair, so the concepts of {{csaprov|Independent Amount}} and {{csaprov|Threshold}}, both of which confuse the {{csa}}, aren’t there to get in the way. Unless you go and put them in anyway, as we shall see...
*First, take your {{csaprov|Exposure}} - the net [[mark-to-market]] value of your {{isdaprov|Transactions}} under the ISDA not counting, of course, the CSA itself. Call this '''E'''.
===={{csa}}====
*Next, add to E the total {{csaprov|Independent Amount}} you are required to pay the other feller. Call this '''IA<sub>t</sub>'''. E + IA<sub>t</sub> is the total amount you have to hand over as {{isdaprov|Credit Support}} if it weren't for ...
How the {{csaprov|IA}} contributes to the {{csaprov|Credit Support Amount}} — being the amount of credit support in total that one party must have given the other at any time<ref>As opposed to the amount required to be transferred ''on that day'', considering the “{{csaprov|Credit Support Balance}}” the {{csaprov|Transferee}} already holds — that’s the {{csaprov|Delivery Amount}} or {{csaprov|Return Amount}}, [[as the case may be]].</ref> under the {{csa}} can be mind-boggling.  
*Any {{isdaprov|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|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:
:''Max[0, E + IA<sub>t</sub> - (IA<sub>r</sub> + Threshold.)''


Let's plug in some numbers. Say:
It pans out for a {{csaprov|Transferee}} like so:
*Exposure is 10,000,000
*'''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<sub>Tee</sub>'''.
*The IA<sub>t</sub> you owe him: 2,000,000
*The '''{{csaprov|Transferor}}’s {{csaprov|Independent Amount}}''': The total {{csaprov|Independent Amount}} {{csaprov|Transferor}} must give the {{csaprov|Transferee}} we will call '''IA<sub>Tor</sub>'''. You can add this to the {{csaprov|Transferee}}’s {{csaprov|Exposure}}, but then you must remember to deduct ...
*IA<sub>r</sub> he owes you: 0
*The '''{{csaprov|Transferee}}’s {{csaprov|Independent Amount}}''': Any {{csaprov|Independent Amount}} the {{csaprov|Transferee}} has to pay the {{csaprov|Transferor}}. Call this '''IA<sub>Tee</sub>'''. <ref>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. [[SFTR]] disclosure, for example.</ref>. Lastly don’t forget to take into account ...
*Your Threshold: 5,000,000
*The '''{{csaprov|Transferor}}’s {{csaprov|Threshold}}''': Any {{csaprov|Threshold}} that applies to the {{csaprov|Transferor}} being the {{csaprov|Exposure}} it is allowed to represent before it has to post [[variation margin]] in the first place.<br />
 
This leaves you with a formula for a {{csaprov|Transferee}}’s {{csaprov|Credit Support Amount}} as follows: '''''Max[0, (E<sub>Tee</sub> + IA<sub>Tor</sub> - IA<sub>Tee</sub> + Threshold)].'''''
 
Let’s plug in some numbers. Say:
*The {{csaprov|Transferee}}’s {{csaprov|Exposure}} is 10,000,000
*The {{csaprov|Transferor}}’s {{csaprov|Independent Amount}} IA<sub>Tor</sub> is 2,000,000
*The {{csaprov|Transferee}}’s {{csaprov|Independent Amount}} IA<sub>Tee</sub> is 0
*The {{csaprov|Transferor}}’s {{csaprov|Threshold}} is 5,000,000
 
Your {{csaprov|Credit Support Amount}} is therefore the greater of zero and ''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 {{csaprov|Delivery Amount}} or a {{csaprov|Return Amount}}, in other words — depends whether your {{csaprov|Credit Support Amount}} is greater or smaller than your prevailing {{csaprov|Credit Support Balance}}, by at least the {{csaprov|Minimum Transfer Amount}}.
===={{vmcsa}} with no [[IA]] amendment====
Since the {{vmcsa}} assumes there is no Independent Amounts and no Thresholds, it is quite a lot easier. It is just the {{vmcsaprov|Exposure}}. So much so, that there isn’t even a concept of the “{{vmcsaprov|Credit Support Amount}}” under the {{vmcsa}}, ''unless you have retrofitted one'', and who in their right mind would do that?
 
Oh.
 
You have, haven’t you. You’ve gone and co-opted the {{vmcsaprov|Credit Support Amount (VM/IA)}} concept in your Paragraph {{vmcsaprov|11}} elections. Yes you did. No, don’t blame your [[credit department]]; don’t say you were just following orders. ''You'' did it.
 
===={{vmcsa}} with a customised [[IA]] amendment====
Never mind. Well, just for you, the formula is a sort of half-way house: Under this unholy bastardisation of a {{vmcsa}}, a {{vmcsaprov|Transferee}}’s {{vmcsaprov|Credit Support Amount}} will be: '''''Max[0, (E<sub>Tee</sub> + IA<sub>Tor</sub> - IA<sub>Tee</sub>)]'''''. <br>

Latest revision as of 15:53, 16 April 2020

Calculating your {{{{{1}}}|Credit Support Amount}}

Superficially things are quite different between the 1995 CSA and the 2016 VM CSA, but this all boils down to the fact that the 2016 VM CSA is meant to be a zero-threshold, variation margin-only affair, so the concepts of Independent Amount and Threshold, both of which confuse the 1995 CSA, aren’t there to get in the way. Unless you go and put them in anyway, as we shall see...

1995 CSA

How the IA contributes to the Credit Support Amount — being the amount of credit support in total that one party must have given the other at any time[1] under the 1995 CSA can be mind-boggling.

It pans out for a Transferee like so:

This leaves you with a formula for a Transferee’s Credit Support Amount as follows: Max[0, (ETee + IATor - IATee + Threshold)].

Let’s plug in some numbers. Say:

Your Credit Support Amount is therefore the greater of zero and 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 — depends whether your Credit Support Amount is greater or smaller than your prevailing Credit Support Balance, by at least the Minimum Transfer Amount.

2016 VM CSA with no IA amendment

Since the 2016 VM CSA assumes there is no Independent Amounts and no Thresholds, it is quite a lot easier. It is just the Exposure. So much so, that there isn’t even a concept of the “Credit Support Amount” under the 2016 VM CSA, unless you have retrofitted one, and who in their right mind would do that?

Oh.

You have, haven’t you. You’ve gone and co-opted the Credit Support Amount (VM/IA) concept in your Paragraph 11 elections. Yes you did. No, don’t blame your credit department; don’t say you were just following orders. You did it.

2016 VM CSA with a customised IA amendment

Never mind. Well, just for you, the formula is a sort of half-way house: Under this unholy bastardisation of a 2016 VM CSA, a Transferee’s Credit Support Amount will be: Max[0, (ETee + IATor - IATee)].

  1. ↑ As opposed to the amount required to be transferred on that day, considering the “Credit Support Balance” the Transferee already holds — that’s the Delivery Amount or Return Amount, as the case may be.
  2. ↑ 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. SFTR disclosure, for example.
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