Managing Collateral & Utilizing CSA Discounting for Pricing Derivatives

Effective collateral management is becoming increasingly important to derivative practitioners, as more and more derivative trades are collateralized. According to the ISDA Margin Survey 2013 (June 2013), 73.7% of all OTC derivatives trades (cleared and non-cleared) are subject to collateral agreements, a dramatic increase from pre-crisis levels in 2007, when only 59% of trades had agreements in place. ISDA also estimates that the total collateral in circulation for non-cleared OTC derivative transactions is US $3.7 trillion, an increase of 177% from 2007.

As collateralization has become the norm, many market participants have observed a significant impact on valuations due to collateral conditions mandated by the Credit Support Annex (CSA). Flexible collateral posting terms (as well as other CSA terms) can increase the complexity of derivative valuations substantially, and practitioners must rethink their valuation approaches so they align with the terms of the CSA – a practice known as CSA discounting.

On Wednesday, December 11th featured speaker Anna Barbashova discussed best practices in collateral management and delved into the theoretical and practical aspects of CSA discounting.

Ms. Barbashova covered:

  • Collateralization – drivers and trends
  • Collateral management – complexities and best practices
  • CSA discounting primer
    • Pricing fully, partially, and non-collateralized deals
  • Managing embedded optionality in CSAs
    • Building Cheapest-to-Deliver (CTD) curves
  • CSA discounting case study

Featured Speakers


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