Collateral Spread for COLVA

[Anonymous]

Dear All!

I’ve seen that the spread used to calculate COLVA is different from the spread in the netting Agreement:
Parameter “CollateralCompoundingSpreadReceive/CollateralCompoundingSpreadPay” from netting.xml: used in OREAnalytics/collateralaccount.cpp

// apply “effective” accrual rate (i.e. adjust for spread specified in netting set definition)
Real accrualRate = (accountBalances_.back() >= 0.0) ? (annualisedZeroRate – csaDef_->collatSpreadRcv())
: (annualisedZeroRate – csaDef_->collatSpreadPay());
// bring collateral account up to margin payment date (note accrual rate is assumed to be compounded
// daily)
accountBalances_.push_back(accountBalances_.back() * std::pow(1.0 + accrualRate / 365.0, accrualDays) +
marginCalls_[i].marginAmount());

Parameter “collateralSpread” from ore.xml: used in OREAnalytics/postprocess.cpp

Real colvaDelta = -balance * collateralSpread_ * dcf / samples;
Real floorDelta = -balance * std::max(-indexValue, 0.0) * dcf / samples;
colvaInc[j + 1] += colvaDelta;

It would be great to have the same Parameter(s) CollateralCompoundingSpreadReceive/CollateralCompoundingSpreadPay being used for COLVA calculation as well, now we have to set the collateralSpread for each counterparty separately.

-regards,
Roland

[Anonymous]

Something like the following could be added right before the usage of the collateralSpread_:

collateralSpread_ = (balance >= 0.0 ? netting->collatSpreadRcv : netting->collatSpreadPay);

Real colvaDelta = -balance * collateralSpread_ * dcf / samples;

-regards,
Roland

[Anonymous]

Thanks a lot for integrating this suggestion in the new release!

Regards,
Roland

[Author]

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