Template:Csa credit support amount calculation: Difference between revisions

Revision as of 17:24, 7 May 2019

How the IA contributes to the Credit Support Amount — being the total value a Transferor actually has to have given to the Transferee at any time^[1] can be mind-boggling.

It pans out for a Transferee 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 IA_t.
E + IA_t 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 IA_r.
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^[2].
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 + IA_t - (IA_r + 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.

↑ As opposed to the total amount required to be paid on any day taking in to account amounts the Transferee already holds — that’s the Credit Support Balance
↑ SFTR disclosure, for example.

@@ Line 1: / Line 1: @@
 ===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 value a {{csaprov|Transferor}} actually has to have given to the {{csaprov|Transferee}} at any time<ref>As opposed to the total amount required to be paid on any day taking in to account amounts the {{csaprov|Transferee}} already holds — that’s the {{csaprov|Credit Support Balance}}</ref> can be mind-boggling.
+It pans out for a {{csaprov|Transferee}} 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 ...