Template:Csa credit support amount calculation: Difference between revisions
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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 {{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}} 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 ... | *'''{{csaprov|Transferor}}’s {{csaprov|Independent Amount}}''': 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>'''.< | *'''{{csaprov|Transferee}}’s {{csaprov|Independent Amount}}''': Any {{csaprov|Independent Amount}} the {{csaprov|Transferee}} has to pay the {{csaprov|Transferor}}. Call this '''IA<sub>r</sub>'''. You need to subtract this. <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 there is ... | ||
*Any {{csaprov|Threshold}} that applies to the {{csaprov|Transferor}} - being the Exposure which triggers its [[variation margin]] obligation 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 for a {{csaprov|Transferee}}’s {{csaprov|Credit Support Amount}} as follows: '''''Max[0, E + IA<sub>t</sub> - (IA<sub>r</sub> + Threshold.)''''' | ||
====Example==== | |||
Let’s plug in some numbers. Say: | |||
*{{csaprov|Transferee}}’s {{csaprov|Exposure}} is 10,000,000 | |||
* | *The {{csaprov|Transferor}}’s {{csaprov|Independent Amount}} IA<sub>t</sub> is 2,000,000 | ||
*The IA<sub>t</sub> | *The {csaprov|Transferee}}’s {{csaprov|Independent Amount}} IA<sub>r</sub> is 0 | ||
*IA<sub>r</sub> | *The {{csaprov|Transferor}}’s {{csaprov|Threshold}} is 5,000,000 | ||
* | |||
Your {{csaprov|Credit Support Amount}} is therefore ''10,000,000 + 2,000,000 - (0 + 5,000,000) = '''7,000,000'''''. | Your {{csaprov|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 {{csaprov|Delivery Amount}} or a {{csaprov|Return Amount}}, in other words — that depends whether the {{csaprov|Credit Support Amount}} is greater or smaller than your prevailing {{csaprov|Credit Support Balance}}. | 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 — that depends whether the {{csaprov|Credit Support Amount}} is greater or smaller than your prevailing {{csaprov|Credit Support Balance}}, by at least the {{csaprov|Minimum Transfer Amount}}. <ref> | ||
Revision as of 14:42, 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:
- 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 1995 CSA itself). Call this E.
- Transferor’s Independent Amount: Add to E the total Independent Amount Transferor must give the Transferee. Call this IAt. E + IAt is the total amount Transferor would be holding at the end of the day if it weren’t for ...
- Transferee’s Independent Amount: Any Independent Amount the Transferee has to pay the Transferor. Call this IAr. You need to subtract this. [2]. Lastly there is ...
- Any Threshold that applies to the Transferor - being the Exposure which triggers its variation margin obligation in the first place.
This leaves you with a formula for a Transferee’s Credit Support Amount as follows: Max[0, E + IAt - (IAr + Threshold.)
Example
Let’s plug in some numbers. Say:
- Transferee’s Exposure is 10,000,000
- The Transferor’s Independent Amount IAt is 2,000,000
- The {csaprov|Transferee}}’s Independent Amount IAr is 0
- The Transferor’s Threshold is 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, by at least the Minimum Transfer Amount. <ref>
- ↑ 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.
- ↑ 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.