Template:Csa credit support amount calculation

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.
Transferor’s Independent Amount: Add to E the total Independent Amount Transferor must give the Transferee. Call this IA_t. E + IA_t 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 IA_r. 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, E + IA_t - (IA_r + Threshold.)

Example

Let’s plug in some numbers. Say:

Transferee’s Exposure is 10,000,000
The Transferor’s Independent Amount IA_t is 2,000,000
The {csaprov|Transferee}}’s Independent Amount IA_r 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. <ref>

↑ 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.

[1] 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.

[2] 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.

[1]

[2]