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 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<sub>Tee</sub>'''. | ||
*'''{{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> | *'''{{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>Tor</sub>'''. ''E<sub>Tee</sub> + IA<sub>Tor</sub>'' is the total amount {{csaprov|Transferor}} would be holding at the end of the day if it weren’t for ... | ||
*'''{{csaprov|Transferee}}’s {{csaprov|Independent Amount}}''': Any {{csaprov|Independent Amount}} the {{csaprov|Transferee}} has to pay the {{csaprov|Transferor}}. Call this '''IA<sub> | *'''{{csaprov|Transferee}}’s {{csaprov|Independent Amount}}''': Any {{csaprov|Independent Amount}} the {{csaprov|Transferee}} has to pay the {{csaprov|Transferor}}. Call this '''IA<sub>Tee</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 for a {{csaprov|Transferee}}’s {{csaprov|Credit Support Amount}} as follows: '''''Max[0, (E + IA<sub> | This leaves you with a formula for a {{csaprov|Transferee}}’s {{csaprov|Credit Support Amount}} as follows: '''''Max[0, (E<sub>Tee</sub> + IA<sub>Tor</sub> - (IA<sub>Tee</sub> + Threshold)].''''' | ||
====Example==== | ====Example==== | ||
Let’s plug in some numbers. Say: | Let’s plug in some numbers. Say: | ||
*The {{csaprov|Transferee}}’s {{csaprov|Exposure}} is 10,000,000 | *The {{csaprov|Transferee}}’s {{csaprov|Exposure}} is 10,000,000 | ||
*The {{csaprov|Transferor}}’s {{csaprov|Independent Amount}} IA<sub> | *The {{csaprov|Transferor}}’s {{csaprov|Independent Amount}} IA<sub>Tor</sub> is 2,000,000 | ||
*The {{csaprov|Transferee}}’s {{csaprov|Independent Amount}} IA<sub> | *The {{csaprov|Transferee}}’s {{csaprov|Independent Amount}} IA<sub>Tee</sub> is 0 | ||
*The {{csaprov|Transferor}}’s {{csaprov|Threshold}} is 5,000,000 | *The {{csaprov|Transferor}}’s {{csaprov|Threshold}} is 5,000,000 | ||
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===={{vmcsa}} with a customised [[IA]] amendment==== | ===={{vmcsa}} with a customised [[IA]] amendment==== | ||
Never mind. Well, just for you, the formula is a sort of half-way house: Under this unholy bastardisation of a {{vmcsa}}, a {{ | Never mind. Well, just for you, the formula is a sort of half-way house: Under this unholy bastardisation of a {{vmcsa}}, a {{vmcsaprov|Transferee}}’s {{vmcsaprov|Credit Support Amount}} will be: '''''Max[0, (E<sub>Tee</sub> + IA<sub>Tor</sub> - (IA<sub>Tee</sub>)].)''''' <br> | ||
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Revision as of 14:55, 6 January 2020
Calculating your Credit Support Amount
1995 CSA
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] under the 1995 CSA 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 ETee.
- Transferor’s Independent Amount: Add to E the total Independent Amount Transferor must give the Transferee. Call this IATor. ETee + IATor 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 IATee. 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, (ETee + IATor - (IATee + Threshold)].
Example
Let’s plug in some numbers. Say:
- The Transferee’s Exposure is 10,000,000
- The Transferor’s Independent Amount IATor is 2,000,000
- The Transferee’s Independent Amount IATee 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.
2016 VM CSA with no IA amendment
Since the 2016 VM CSA assumes there is no Independent Amounts and no Thresholds, it is quite a lot easier. It is just the Exposure. So much so, that there isn't even a concept of the Credit Support Amount under the 2016 VM CSA, unless you have retrofitted one, and who in their right mind would do that?
Oh.
You have, haven’t you. You’ve gone and co-opted the Credit Support Amount (VM/IA) concept in your Paragraph 11 annex, haven’t you.
2016 VM CSA with a customised IA amendment
Never mind. Well, just for you, the formula is a sort of half-way house: Under this unholy bastardisation of a 2016 VM CSA, a Transferee’s Credit Support Amount will be: Max[0, (ETee + IATor - (IATee)].)
- ↑ 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.