Template:Csa credit support amount calculation: Difference between revisions

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===Calculating your {{csaprov|Credit Support Amount}}===
===Calculating your {{{{{1}}}|Credit Support Amount}}===
How the {{csaprov|IA}} contributes to the {{csaprov|Credit Support Amount}} — being the amount of credit support in total that one party must have given the other at any time<ref>As opposed to the amount required to be transferred ''on that day'', considering the “{{csaprov|Credit Support Balance}}” the {{csaprov|Transferee}} already holds — that’s the {{csaprov|Delivery Amount}} or {{csaprov|Return Amount}}, [[as the case may be]].</ref> can be mind-boggling.  
Superficially things are quite different between the {{csa}} and the {{vmcsa}}, but this all boils down to the fact that the {{vmcsa}} is ''meant'' to be a zero-threshold, [[variation margin]]-only affair, so the concepts of {{csaprov|Independent Amount}} and {{csaprov|Threshold}}, both of which confuse the {{csa}}, aren’t there to get in the way. Unless you go and put them in anyway, as we shall see...
===={{csa}}====
How the {{csaprov|IA}} contributes to the {{csaprov|Credit Support Amount}} — being the amount of credit support in total that one party must have given the other at any time<ref>As opposed to the amount required to be transferred ''on that day'', considering the “{{csaprov|Credit Support Balance}}” the {{csaprov|Transferee}} already holds — that’s the {{csaprov|Delivery Amount}} or {{csaprov|Return Amount}}, [[as the case may be]].</ref> under the {{csa}} can be mind-boggling.  


It pans out for a {{csaprov|Transferee}} like so:
It pans out for a {{csaprov|Transferee}} like so:
*The {{csaprov|Transferee}}’s {{csaprov|Exposure}} - the net [[mark-to-market]] value the {{csaprov|Transferor}} would owe the {{csaprov|Transferee}} under all outstanding {{isdaprov|Transactions}}  if they were [[closed out]] (not counting, of course, the {{csa}} itself). Call this '''E'''.
*'''The {{csaprov|Transferee}}’s {{csaprov|Exposure}}''': the net [[mark-to-market]] value the {{csaprov|Transferor}} would owe the {{csaprov|Transferee}} under all outstanding {{isdaprov|Transactions}}  if they were [[closed out]] (not counting, of course, the {{csa}} itself). Call this '''E<sub>Tee</sub>'''.
*Add to E the total {{csaprov|Independent Amount}} {{csaprov|Transferor}} must give the {{csaprov|Transferee}}. Call this '''IA<sub>t</sub>'''. ''E + IA<sub>t</sub>'' is the total amount {{csaprov|Transferor}} would be holding at the end of the day if it weren’t for ...
*The '''{{csaprov|Transferor}}’s {{csaprov|Independent Amount}}''': The total {{csaprov|Independent Amount}} {{csaprov|Transferor}} must give the {{csaprov|Transferee}} we will call '''IA<sub>Tor</sub>'''. You can add this to the {{csaprov|Transferee}}’s {{csaprov|Exposure}}, but then you must remember to deduct ...
*Any {{csaprov|Independent Amount}} the {{csaprov|Transferee}} has to pay the {{csaprov|Transferor}}. Call this '''IA<sub>r</sub>'''.<br>''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>.''. Lastly there is ...
*The '''{{csaprov|Transferee}}’s {{csaprov|Independent Amount}}''': Any {{csaprov|Independent Amount}} the {{csaprov|Transferee}} has to pay the {{csaprov|Transferor}}. Call this '''IA<sub>Tee</sub>'''. <ref>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. [[SFTR]] disclosure, for example.</ref>. Lastly don’t forget to take into account ...
*Any {{csaprov|Threshold}} that applies to the {{csaprov|Transferor}} - being the Exposure which triggers its [[variation margin]] obligation in the first place.<br />
*The '''{{csaprov|Transferor}}’s {{csaprov|Threshold}}''': Any {{csaprov|Threshold}} that applies to the {{csaprov|Transferor}} being the {{csaprov|Exposure}} it is allowed to represent before it has to post [[variation margin]] in the first place.<br />


This leaves you with a formula as follows:
This leaves you with a formula for a {{csaprov|Transferee}}’s {{csaprov|Credit Support Amount}} as follows: '''''Max[0, (E<sub>Tee</sub> + IA<sub>Tor</sub> - IA<sub>Tee</sub> + Threshold)].'''''
:''Max[0, E + IA<sub>t</sub> - (IA<sub>r</sub> + Threshold.)''


Let's plug in some numbers. Say:
Let’s plug in some numbers. Say:
*Your {{csaprov|Exposure}} is 10,000,000
*The {{csaprov|Transferee}}’s {{csaprov|Exposure}} is 10,000,000
*The IA<sub>t</sub> you owe the counterparty: 2,000,000
*The {{csaprov|Transferor}}’s {{csaprov|Independent Amount}} IA<sub>Tor</sub> is 2,000,000
*IA<sub>r</sub> the counterparty owes you: 0
*The {{csaprov|Transferee}}’s {{csaprov|Independent Amount}} IA<sub>Tee</sub> is 0
*Your {{csaprov|Threshold}}: 5,000,000
*The {{csaprov|Transferor}}’s {{csaprov|Threshold}} is 5,000,000


Your {{csaprov|Credit Support Amount}} is therefore ''10,000,000 + 2,000,000 - (0 + 5,000,000) = '''7,000,000'''''.  
Your {{csaprov|Credit Support Amount}} is therefore the greater of zero and ''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 {{csaprov|Delivery Amount}} or a {{csaprov|Return Amount}}, in other words — that depends whether the {{csaprov|Credit Support Amount}} is greater or smaller than your prevailing {{csaprov|Credit Support Balance}}.
Now, whether you have to ''pay'' anything or ''receive'' anything as a result — whether there is a {{csaprov|Delivery Amount}} or a {{csaprov|Return Amount}}, in other words — depends whether your {{csaprov|Credit Support Amount}} is greater or smaller than your prevailing {{csaprov|Credit Support Balance}}, by at least the {{csaprov|Minimum Transfer Amount}}.
===={{vmcsa}} with no [[IA]] amendment====
Since the {{vmcsa}} assumes there is no Independent Amounts and no Thresholds, it is quite a lot easier. It is just the {{vmcsaprov|Exposure}}. So much so, that there isn’t even a concept of the “{{vmcsaprov|Credit Support Amount}}” under the {{vmcsa}}, ''unless you have retrofitted one'', and who in their right mind would do that?
 
Oh.
 
You have, haven’t you. You’ve gone and co-opted the {{vmcsaprov|Credit Support Amount (VM/IA)}} concept in your Paragraph {{vmcsaprov|11}} elections. Yes you did. No, don’t blame your [[credit department]]; don’t say you were just following orders. ''You'' did it.
 
===={{vmcsa}} with a customised [[IA]] amendment====
Never mind. Well, just for you, the formula is a sort of half-way house: Under this unholy bastardisation of a {{vmcsa}}, a {{vmcsaprov|Transferee}}’s {{vmcsaprov|Credit Support Amount}} will be: '''''Max[0, (E<sub>Tee</sub> + IA<sub>Tor</sub> - IA<sub>Tee</sub>)]'''''. <br>

Latest revision as of 15:53, 16 April 2020

Calculating your {{{{{1}}}|Credit Support Amount}}

Superficially things are quite different between the 1995 CSA and the 2016 VM CSA, but this all boils down to the fact that the 2016 VM CSA is meant to be a zero-threshold, variation margin-only affair, so the concepts of Independent Amount and Threshold, both of which confuse the 1995 CSA, aren’t there to get in the way. Unless you go and put them in anyway, as we shall see...

1995 CSA

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] under the 1995 CSA can be mind-boggling.

It pans out for a Transferee like so:

This leaves you with a formula for a Transferee’s Credit Support Amount as follows: Max[0, (ETee + IATor - IATee + Threshold)].

Let’s plug in some numbers. Say:

Your Credit Support Amount is therefore the greater of zero and 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 — depends whether your Credit Support Amount is greater or smaller than your prevailing Credit Support Balance, by at least the Minimum Transfer Amount.

2016 VM CSA with no IA amendment

Since the 2016 VM CSA assumes there is no Independent Amounts and no Thresholds, it is quite a lot easier. It is just the Exposure. So much so, that there isn’t even a concept of the “Credit Support Amount” under the 2016 VM CSA, unless you have retrofitted one, and who in their right mind would do that?

Oh.

You have, haven’t you. You’ve gone and co-opted the Credit Support Amount (VM/IA) concept in your Paragraph 11 elections. Yes you did. No, don’t blame your credit department; don’t say you were just following orders. You did it.

2016 VM CSA with a customised IA amendment

Never mind. Well, just for you, the formula is a sort of half-way house: Under this unholy bastardisation of a 2016 VM CSA, a Transferee’s Credit Support Amount will be: Max[0, (ETee + IATor - IATee)].

  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.
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