Template:Csa credit support amount calculation
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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.
- 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 ...
- Any Independent Amount the Transferee has to pay the Transferor. Call this IAr.
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].. 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 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.
- ↑ 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.
- ↑ SFTR disclosure, for example.