Authorised Firm must calculate the value of the Credit Risk mitigation adjusted for any maturity mismatch (referred to as "PA"), using the following formula:
PA = P(t-0.25)/(T-0.25)
(a) P = value of the credit protection (e.g.
Collateral amount, guarantee amount) adjusted for any haircuts;
(b) t = min (T, residual maturity of the
Credit Risk mitigant) expressed in years; and
(c) T = min (5, residual maturity of the
Exposure) expressed in years.
(2) For residual maturity of the
Exposure in the case of a basket of Exposures with different maturities, an Authorised Firm must use the longest maturity of any of the Exposures as the maturity of all the Exposures being hedged.
Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]