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 value a {{csaprov|Transferor}} must have given to the {{csaprov|Transferee}} at any time<ref>As opposed to the total amount required to be paid ''on any 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> can be mind-boggling.  
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> can be mind-boggling.  


It pans out for a {{csaprov|Transferee}} like so:
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'''.
*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 ...
*Add to E the total {{csaprov|Independent Amount}} {{csaprov|Transferor}} must give the {{csaprov|Transferee}}. Call this '''IA<sub>t</sub>'''. ''E + IA<sub>t</sub>'' is the total amount {{csaprov|Transferor}} would be holding at the end of the day 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|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>.''. Lastly there is ...
#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 />
*Any {{csaprov|Threshold}} that applies to the {{csaprov|Transferor}} - being the Exposure which triggers its [[variation margin]] obligation in the first place.<br />


This leaves you with a formula as follows:
This leaves you with a formula as follows:
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Let's plug in some numbers. Say:
Let's plug in some numbers. Say:
*{{csaprov|Exposure}} is 10,000,000
*Your {{csaprov|Exposure}} is 10,000,000
*The IA<sub>t</sub> you owe him: 2,000,000
*The IA<sub>t</sub> you owe the counterparty: 2,000,000
*IA<sub>r</sub> he owes you: 0
*IA<sub>r</sub> the counterparty owes you: 0
*Your {{csaprov|Threshold}}: 5,000,000
*Your {{csaprov|Threshold}}: 5,000,000


Revision as of 14:34, 6 January 2020

Calculating your Credit Support Amount

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] can be mind-boggling.

It pans out for a Transferee like so:

This leaves you with a formula as follows:

Max[0, E + IAt - (IAr + Threshold.)

Let's plug in some numbers. Say:

  • Your Exposure is 10,000,000
  • The IAt you owe the counterparty: 2,000,000
  • IAr the counterparty owes you: 0
  • Your Threshold: 5,000,000

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.

  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. ↑ SFTR disclosure, for example.
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