CoachThe exposure at default (EAD) of a netting set is the exposure a capital rule charges for its counterparty’s default. The standardised approach for counterparty credit risk (SA-CCR) sets : a replacement cost (, or under margin) plus supervisory add-ons per asset class (for interest rates, 0.5% of the notional times a supervisory duration and a maturity factor), scaled down for excess collateral.
Examples
Example 19.7 (The swap’s EAD)
Today the swap has no replacement cost; its supervisory duration is 7.87 years and its add-on 0.5% of USD 100 million times 7.87, USD 3.93 million, so its EAD is USD 5.51 million. Under a CSA with a ten-day margin period of risk the maturity factor is and the replacement cost floor the MTA of USD 0.5 million: EAD USD 2.35 million. The implementation reproduces the Basel Committee’s worked example (an EAD of 569 thousand on three trades).