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:(c) {{isdaprov|Unpaid Amounts}} due to the {{isdaprov|Defaulting Party}}.<br> | :(c) {{isdaprov|Unpaid Amounts}} due to the {{isdaprov|Defaulting Party}}.<br> | ||
There aren’t really likely, in peacetime, to be {{isdaprov|Unpaid Amounts}} loafing about — an amount that you are due to pay ''today'' or ''tomorrow'' wouldn’t, ''yet'', qualify as “unpaid”, but would be factored into the {{isdaprov|Close-out Amount}} calculation. | |||
There is a little bit of a dissonance here, since “{{{{{1}}}|Exposure}}” is a snapshot calculation that treats all future cashflows, whether due in a day, a month or a year from today, the same way: it discounts them back to today, adds them up and sets them off. Your {{{{{1}}}|Delivery Amount}} or {{{{{1}}}|Return Amount}}, [[as the case may be]], is just the difference between that Exposure and whatever the existing {{{{{1}}}|Credit Support Balance}} is. The [[future]] is the future: unknowable, unpredictable, but ''discountable'', whether it happens in a day or a thousand years. | |||
The thing which, I think, causes all the confusion is the | All the same, this ''can'' seem kind of weird when your CSA ''you'' have to pay ''him'' an amount today when ''he'' owes ''you'' an even bigger amount tomorrow. It’s like, “hang on: why am I paying you margin when, tomorrow, ''you'' are going to be in the hole to ''me''? Like, by ''double'', if I pay you this margin and you fail to me tomorrow.” | ||
The thing which, I think, causes all the confusion is the dates and amounts of payments under ''normal'' {{isdaprov|Transaction}}s are deterministic, anticipatable, and specified in the {{isdaprov|Confirmation}}, whereas whether one is required under a CSA on any day, and how much it will be, depend on things you only usually find out about at the last minute. CSA payments are due “a regular [[settlement cycle]] after they are called” — loosey goosey, right? — (or even same day if you are under a VMV CSA and you are on the ball with your calls) whereas normal swap payments are due (say) “on the 15th of March” | |||
So, a scenario to illustrate: | |||
*''Day 1'': Party A has an {{{{{1}}}|Exposure}} — is out of the money — to the tune of 100. Its prevailing {{{{{1}}}|Credit Support Balance}} is 90, so (let’s say, for fun, ''after'' the {{{{{1}}}|Notification Time}} on the {{{{{1}}}|Demand Date}}) Party B has called it for a {{{{{1}}}|Delivery Amount}} of a further 10, which it must pay, but not until tomorrow. | *''Day 1'': Party A has an {{{{{1}}}|Exposure}} — is out of the money — to the tune of 100. Its prevailing {{{{{1}}}|Credit Support Balance}} is 90, so (let’s say, for fun, ''after'' the {{{{{1}}}|Notification Time}} on the {{{{{1}}}|Demand Date}}) Party B has called it for a {{{{{1}}}|Delivery Amount}} of a further 10, which it must pay, but not until tomorrow. | ||
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This seems rather a waste of operational effort, and will also take years off your credit officer’s life and may even cause his hair to catch fire. Can Party A just ''not'' pay the further Delivery Acount in anticipation of what will happen tomorrow? | This seems rather a waste of operational effort, and will also take years off your credit officer’s life and may even cause his hair to catch fire. Can Party A just ''not'' pay the further Delivery Acount in anticipation of what will happen tomorrow? | ||
Fun times in the world of [[collateral]] [[operations]]. | Fun times in the world of [[collateral]] [[operations]]. |