Template:Csa credit support amount calculation

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:

1. 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.
2. 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 ...
3. 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.
4. 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:

• Exposure is 10,000,000
• The IA_t you owe him: 2,000,000
• IA_r he 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.