Template:Csa credit support amount calculation
Calculating your Credit Support Amount
How the IA contributes to the Credit Support Amount — being the total value a Transferor actually has to have given to the Transferee 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 CSA itself). Call this E.
- Add to E the total Independent Amount Transferor is required to give the Transferee. Call this IAt.
E + IAt is the total amount Transferor would have to hand 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]. - 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 + IAt - (IAr + Threshold.)
Let's plug in some numbers. Say:
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 total amount required to be paid on any day taking in to account the amount (the Credit Support Balance) the Transferee already holds — that’s Delivery Amount or Return Amount, as the case may be.
- ↑ SFTR disclosure, for example.