In the above example, what would maturity (M) equal if the customers exposures were not covered under an International Swaps and Derivatives Association (ISDA) agreement?
If the two transactions are not covered under an ISDA master netting agreement, they would be treated as two separate transactions: one with a maturity of one year, and the second with a maturity of five years. However, the net effect on M is the same as if two transactions were subject to a master netting agreement: assuming the two exposures are slotted into the same probability of default (PD)/loss given default (LGD) bucket, M for that bucket is calculated as a weighted-average maturity for the exposures in that bucket.
Related Questions
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