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 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:

  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 IAt.
    E + IAt 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 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].
  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 + IAt - (IAr + Threshold.)

Let's plug in some numbers. Say:

  • Exposure is 10,000,000
  • The IAt you owe him: 2,000,000
  • IAr 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.

  1. 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.
  2. SFTR disclosure, for example.