Lesson 9 of 25 · 5 min
Compute headroom in dollars
Headroom is market value minus the trigger, and it can be read before any percentage is computed.
Headroom in dollars is the current collateral value minus the trigger. On this facility that is market value minus $2,655,090.67, because the threshold is written against market value. The sign of the result is the whole of the test: positive passes, negative fails, zero is exactly at the line.
March close: $6,032,795 − $2,655,090.67 = $3,377,704.33. After the 19 percent uniform move: $4,886,563.95 − $2,655,090.67 = $2,231,473.28. After Calder's 37 percent: $5,351,993.15 − $2,655,090.67 = $2,696,902.48. After both: $4,555,363.05 − $2,655,090.67 = $1,900,272.38.
After the 60 percent uniform move the subtraction flips sign: $2,413,118.00 − $2,655,090.67 = −$241,972.67. The dollar headroom is the shortfall with its sign reversed. Nothing else in the comparison has changed — same trigger, same subtraction — and the book has simply gone through the line.
Notice the order of the four positive figures. The Calder-only book keeps more dollar headroom than the 19 percent book, which keeps more than the combined book. That ranking is the ranking of the four market values, because they are all being measured against one stationary trigger. Dollar headroom inherits the order of the books. The percentage version in the next lesson is the same surplus restated as a share of each book; the sign, and the failure, are already decided here.
Key terms
- Dollar headroom
- Current collateral value minus the trigger. The number of dollars of collateral that can still disappear before the test fails.
- Sign of headroom
- Positive when the test passes, negative when it fails. The negative figure is the shortfall.
- Stationary comparison
- Subtracting one unchanged trigger from several stressed market values. The ranking of the results is the ranking of the books.
Worked example
Five subtractions against one trigger
Trigger held at $2,655,090.67. Each row is stressed market value minus that figure.
- March close
- $3,377,704.33
- Uniform 19 percent
- $2,231,473.28
- Calder −37 percent
- $2,696,902.48
- Both
- $1,900,272.38
- Uniform 60 percent
- −$241,972.67
The shortfall, with its sign.
Four of the five books still have a surplus against the same line. The fifth is the same subtraction below zero.
Check yourself
After both moves, market value is $4,555,363.05 and the trigger is $2,655,090.67. What is headroom in dollars, and what would that figure have to become for the test to fail?
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.