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Default - CSA Provision: Difference between revisions
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The {{csa}} is technically a Transaction under the {{isdama}} in its own right — that is deep ISDA lore — but it is still a ''weird'' {{isdaprov|Transaction}}, and the standard replacement cost methodology doesn’t work brilliantly for it: rather than having defined payments upfront, each of which can be valued and discounted back to a given date to reveal a present value, payment obligations under a {{csa}} are entirely dependent on the future performance of the ''other'' {{isdaprov|Transaction}}s in the portfolio under your {{isdama}}. So good luck determining the replacement value of something like that. | The {{csa}} is technically a Transaction under the {{isdama}} in its own right — that is deep ISDA lore — but it is still a ''weird'' {{isdaprov|Transaction}}, and the standard replacement cost methodology doesn’t work brilliantly for it: rather than having defined payments upfront, each of which can be valued and discounted back to a given date to reveal a present value, payment obligations under a {{csa}} are entirely dependent on the future performance of the ''other'' {{isdaprov|Transaction}}s in the portfolio under your {{isdama}}. So good luck determining the replacement value of something like that. | ||
But the good news is you don’t have to: the {{csaprov|Credit Support Balance}} isn’t calculated by reference to its own discounted future cashflows: rather, it is just the inverse of the aggregate present value of all the other Transactions under the ISDA. So the “replacement cost” on any day is just the prevailing value of the {{csaprov|Credit Support Balance}}. It is therefore easier to treat that as an {{isdaprov|Unpaid Amount}} (none of this tedious mucking about with replacement costs and so on). But that means you have to deem the {{isdaprov|Close-Out Amount}}<ref>Or {{isdaprov|Market Quotation}}, if under a {{1992ma}}. Loss | But the good news is you don’t have to: the {{csaprov|Credit Support Balance}} isn’t calculated by reference to its own discounted future cashflows: rather, it is just the inverse of the aggregate present value of all the other Transactions under the ISDA. So the “replacement cost” on any day is just the prevailing value of the {{csaprov|Credit Support Balance}}. It is therefore easier to treat that as an {{isdaprov|Unpaid Amount}} (none of this tedious mucking about with replacement costs and so on). But that means you have to deem the {{isdaprov|Close-Out Amount}}<ref>Or {{isdaprov|Market Quotation}}/{{isdaprov|Loss}}, if under a {{1992ma}}.Spoddy point: the definition of {{isdaprov|Loss}} in the {{1992ma}} ''includes'' the “Unpaid Amount” concept in the definition: “{{isdaprov|Loss}} includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant {{isdaprov|Early Termination Date}} and not made...” </ref> as zero. | ||
===Including “comprehensive” {{isdaprov|Termination Event}}s=== | ===Including “comprehensive” {{isdaprov|Termination Event}}s=== | ||