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rc

Calculate complete replacement cost (RC) for each portfolio

Since R2024a

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Syntax

outRCResults = rc(saccrObject)

Description

example

outRCResults = rc(saccrObject) computes the complete replacement cost (RC) for each portfolio using the saccr object. For more information, see Replacement Cost.

Examples

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Open Live Script

Use a saccr object and the rc function to calculate complete replacement cost for each portfolio.

Define the foreign exchange (FX) spot currency exchange rate table.

format("default");
Base = ["EUR";"GBP";"GBP"];
Quote = ["USD";"USD";"EUR"];
SpotRate = [1.0543;1.2195;1.1567];
FXSpotTable = table(Base,Quote,SpotRate)
FXSpotTable=3×3 table
    Base     Quote    SpotRate
    _____    _____    ________

    "EUR"    "USD"     1.0543 
    "GBP"    "USD"     1.2195 
    "GBP"    "EUR"     1.1567

Define the SA-CCR CRIF file.

SACCRCRIF = "SACCR_CRIF_Ports_7_8_9.csv";

Create a saccr object using the data in the SA-CCR CRIF file.

mySACCR = saccr(SACCRCRIF, DomesticCurrency="USD", FXSpot=FXSpotTable)
mySACCR = 
  saccr with properties:

                         CRIF: [42×19 table]
                NumPortfolios: 3
                 PortfolioIDs: [3×1 string]
              CounterpartyIDs: [3×1 string]
                   Portfolios: [3×1 saccr.Portfolio]
                   Regulation: "Basel_CRE52"
             DomesticCurrency: "USD"
                        Alpha: [3×1 double]
                  FXSpotRates: [3×3 table]
          TradeDecompositions: [5×2 table]
           CollateralHaircuts: [200×6 table]
        SupervisoryParameters: [19×7 table]
    MaturityBusinessDaysFloor: 10
          NumBusinessDaysYear: 250

You can then use the rc function with the saccr object. For more information, see Replacement Cost. 

outRCResults = rc(mySACCR)
outRCResults = 
  RCResults with properties:

         NumPortfolios: 3
          PortfolioIDs: [3×1 string]
       CounterpartyIDs: [3×1 string]
            Regulation: "Basel_CRE52"
      DomesticCurrency: "USD"
    RCUncollateralized: [3×1 double]
      RCCollateralized: [3×1 double]

Input Arguments

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SA-CCR object, specified as a saccr object. You create a saccr object using saccr.

Data Types: object

Output Arguments

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Replacement cost results, returned as a RCResults object. The RCResults object has the following properties:

  • NumPortfolios

  • PortfolioIDs

  • CounterpartyIDs

  • Regulation

  • DomesticCurrency

  • RCUncollateralized

  • RCCollateralized

More About

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Replacement Cost

Under the SA-CCR framework, the replacement cost (RC) is the market value of a derivative contract at default, accounting for netting agreements, collateral, and the cost to replace the contract.

RC is calculated by marking the contract to market and applying haircuts for potential market fluctuations. This cost is crucial in counterparty credit risk capital requirements, representing potential loss if a counterparty defaults. Higher replacement costs lead to higher capital requirements. The SA-CCR framework aims for a more accurate, risk-sensitive measure of counterparty exposure by considering the market value of derivative contracts and potential default losses.

RC is calculated at the netting set level, offsetting positive and negative mark-to-markets (MTMs) within the same set. The calculation differs for uncollateralized, unmargined, and margined netting sets:

  • No Collateral — RC = max(V,0) where V is the sum of all MTMs of all transactions in the netting set.

  • Not Margined — RC = max(V − C,0) where C is the haircut value of net collateral held.

  • Margined — RC = max(V − C,TH + MTA − NICA, 0) where:

    • TH — The threshold amount.

    • MTA — The minimum transfer amount.

    • NICA — The net independent collateral amount usable on counterparty default when both parties post an independent collateral amount (ICA).

References

[1] Bank for International Settlements. "CRE52 - Standardised Approach to Counterparty Credit Risk." June 2020. Available at: https://www.bis.org/basel_framework/chapter/CRE/52.htm.

[2] Bank for International Settlements. "CRE22 - Standardised Approach: Credit Risk Migration." November 2020. Available at: https://www.bis.org/basel_framework/chapter/CRE/22.htm.

[3] Bank for International Settlements. "Basel Committee on Banking Supervision: The Standardised Approach for Measuring Counterparty Credit Risk Exposures." April 2014. Available at: https://www.bis.org/publ/bcbs279.pdf.

Version History

Introduced in R2024a

See Also

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