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 its counterparty 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 its counterparty can be mind-boggling. It pans out like for a given counterparty like so: | ||
*First, take | *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'''. | ||
*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 {{csaprov|Credit Support}} if it weren't for ... | *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 {{csaprov|Credit Support}} 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 ''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>. | ||
Revision as of 12:48, 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 its counterparty can be mind-boggling. It pans out like for a given counterparty like so:
- First, take 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.
- Next, add to E the total Independent Amount you are required to pay the other feller. Call this IAt. E + IAt is the total amount you have to hand over as Credit Support if it weren't for ...
- Any Independent Amount the other dude owes you. This we will call 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].
- 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:
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.