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: | ||
#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'''. | |||
#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 {{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 /> | |||
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:
- 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.
- 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 ... - 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]. - 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.