Netting and collateral

Trades covered by one netting agreement are valued together so that positive and negative amounts can offset. NettingSet stores their claims and the applicable discount policy. Attach CsaTerms to supply the collateral, credit and funding inputs used by the high-level XVA engine.

The agreement’s collateral currency determines discounting. Variation-margin settings additionally determine the simulated collateral balance and residual exposure used in adjustment calculations.

Currency and discounting

The CSA currency/index imply a SingleCurveCSADiscountPolicy. Payments in that currency use the collateral index; foreign payments use Collateral(payment_ccy, collateral_ccy). Each selected identity needs a constructed curve and supported rate model. FX models connect the relevant currencies on paths.

NettingSet::new accepts an explicit policy for lower-level exposure work. with_csa_terms attaches the additional economic inputs used by high-level adjustment factories. Claims from native instruments and scripts can coexist, provided their direction, scale and model requests are consistent.

Variation margin

variation_margin defaults to false. When enabled, the engine maintains one signed collateral balance per netting set and path. Thresholds and minimum transfer amount are finite, nonnegative amounts in collateral currency, independent of the reporting currency.

For raw exposure \(V\), counterparty threshold \(H_c\) and own threshold \(H_o\), target collateral is

\[ C^\ast=\max(V-H_c,0)-\max(-V-H_o,0). \]

The transfer rule replaces the current balance \(C\) when \(|C^\ast-C|\geq\mathrm{MTA}\), including equality. Otherwise the previous balance remains. Between calls, retained collateral accrues using the simulated CSA remuneration-curve interval discount factor; foreign collateral is converted at simulated FX.

Adjustment aggregators receive residual exposure \(V-C\) after each call. Returned NPV cubes and their EPE/ENE/EE methods still show raw pre-margin exposure. That reporting distinction is essential when reconciling profiles to a collateralized adjustment.

Calls occur on every simulation date, including the initial date, and settle immediately. The implementation omits separate call frequency, settlement lag, margin period of risk and initial margin. Refine the simulation grid to assess the effect of the implemented call timing.

Credit and funding inputs

With credit_index, CVA uses a constructed survival curve. Otherwise credit_spread is interpreted as a flat credit spread and converted to hazard using loss given default:

\[ \lambda=\frac{\text{credit_spread}}{1-\text{recovery}}. \]

The field is not itself a hazard-rate input. Recovery also determines the loss multiplier in CVA.

Funding precedence is separate. A configured funding_index derives forward spreads relative to the system curve, with an optional explicit spread overlay. Without that index, funding_spread_curve supplies dated annualized spreads; otherwise the flat funding_spread is used.

Explicit spread curves reuse ZeroRateTermStructure or the supported tenor-based zero representation. They respect their reference date, day counter, interpolation and extrapolation conventions. The native AD representation can retain explicit zero-rate pillar risk, but derived funding-index factory leaves have a different scope, explained next.

Multiple netting sets share the run’s market paths, while each retains its own agreement and adjustment inputs. Netting changes positive and negative parts nonlinearly. FVA’s signed integration means that a smaller positive-exposure profile alone does not establish a smaller funding adjustment.