Credit mitigation: Difference between revisions

Credit mitigation (view source)

950 bytes added , 10 December 2016

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 These customised events tend to be more controversial, harder to articulate and more complicated: [[NAV trigger]]s may be set at different thresholds over different periods.
-====Margin====
+====[[Netting]] and [[margin]]====
-Master trading agreements also have less invasive means of mitigating
+There are less invasive credit mitigation techniques.
+*'''[[Netting]]''': Rights to offset positive and negative transaction values under the same agreement upon [[close out]];
+*'''[[Margin]]''': The obligation:
+**'''[[Variation margin]]''': To regularly transfer cash or assets representing the present net [[mark-to-market]] value of transactions under the agreement;
+**'''[[Initial margin]]''':  To transfer assets representing the worst-case market movements in transactions values between [[variation margin]] payments.
+So here’s the thing: As long as margin is regularly collected and paid when due, and as long as you’ve correctly calculated the initial margin you need so that it covers any “[[gap loss]]” if  your counterparty goes bust — you’re covered. The moment the counterparty misses a margin call, you have a [[failure to pay]]. It’s the cleanest event there is. You may have to wait out a grace period of a day or two - but you took initial margin to look after that.