Template:Csa credit support amount calculation: Difference between revisions

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*First, take your {{csaprov|Exposure}} - the net [[mark-to-market]] value of your {{isdaprov|Transactions}}  under the ISDA not counting, of course, the CSA itself. Call this '''E'''.
*First, take your {{csaprov|Exposure}} - the net [[mark-to-market]] value of your {{isdaprov|Transactions}}  under the ISDA not counting, of course, the CSA itself. Call this '''E'''.
*Next, add to E the total {{csaprov|Independent Amount}} you are required to pay the other feller. Call this '''IA<sub>t</sub>'''. E + IA<sub>t</sub> is the total amount you have to hand over as {{csaprov|Credit Support}} if it weren't for ...
*Next, add to E the total {{csaprov|Independent Amount}} you are required to pay the other feller. Call this '''IA<sub>t</sub>'''. E + IA<sub>t</sub> is the total amount you have to hand over as {{csaprov|Credit Support}} if it weren't for ...
*Any {{isdaprov|Independent Amount}} the ''other'' dude owes ''you''. This we will call '''IA<sub>r</sub>'''. There’s something faintly absurd both parties exchanging {{csaprov|Independent Amounts}} by [[title transfer]] — they net off against each other — but that’s as may be. Stupider things have happened<ref>[[SFTR]] disclosure, for example.</ref>.  
*Any {{csaprov|Independent Amount}} the ''other'' dude owes ''you''. This we will call '''IA<sub>r</sub>'''. There’s something faintly absurd both parties exchanging {{csaprov|Independent Amounts}} by [[title transfer]] — they net off against each other — but that’s as may be. Stupider things have happened<ref>[[SFTR]] disclosure, for example.</ref>.  
*Any {{csaprov|Threshold}} that applies to the {{csaprov|Transferor}} - being the minimum MTM amount at which it must pony up variation margin in the first place.<br />
*Any {{csaprov|Threshold}} that applies to the {{csaprov|Transferor}} - being the minimum MTM amount at which it must pony up variation margin in the first place.<br />
This leaves you with a formula as follows:
This leaves you with a formula as follows:

Revision as of 19:25, 19 January 2017

Calculating your Credit Support Amount

How the IA contributes to the Credit Support Amount — being the total amount a Transferor actually has to hand over to its counterparty can be mind-boggling. It pans out like for a given counterparty like so:

  • First, take your Exposure - the net mark-to-market value of your Transactions under the ISDA not counting, of course, the CSA itself. Call this E.
  • Next, add to E the total Independent Amount you are required to pay the other feller. Call this IAt. E + IAt is the total amount you have to hand over as Credit Support if it weren't for ...
  • Any Independent Amount the other dude owes you. This we will call 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[1].
  • 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. ↑ SFTR disclosure, for example.
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