Absolute value: Difference between revisions
Amwelladmin (talk | contribs) Created page with "{{g}}In maths, the absolute value of a number is its positive value, whether the number itself is positive or negative. So the absolute value of +10 is +10, but the ab..." |
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What possible use is the [[absolute value]]? Well, it is quite handy when talking about payments in a derivative contract which, if positive, are payable from A to B and, if negative, are payable from B to A. In such a case we can say “the party in question will pay the ''[[absolute value]]'' of the payment”. | What possible use is the [[absolute value]]? Well, it is quite handy when talking about payments in a derivative contract which, if positive, are payable from A to B and, if negative, are payable from B to A. In such a case we can say “the party in question will pay the ''[[absolute value]]'' of the payment”. | ||
For example if, carelessly, | For example if, carelessly, you said: ''The {{isdaprov|Calculation Agent}} will calculate an adjustment payment which, if positive, {{isdaprov|Party A}} must pay to {{isdaprov|Party B}} and, if negative, {{isdaprov|Party B}} will pay to {{isdaprov|Party A}}.'' | ||
Here you would be saying that Party B has to pay a ''negative'' amount — but paying a negative amount is the same as receiving a positive amount. That’s not the idea. So in the formulation above, Party A would wind up paying Party B in every situation, whether the amount was positive or negative. This is not what is intended. You can fix it thus: ''The {{isdaprov|Calculation Agent}} will calculate an adjustment payment which, if positive, {{isdaprov|Party A}} must pay to {{isdaprov|Party B}} and, if negative, {{isdaprov|Party B}} will pay the [[absolute value]] of that amount to {{isdaprov|Party A}}.'' | |||
Also can come in handy with unexpected things like negative interest rates. | Also can come in handy with unexpected things like negative interest rates. | ||
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*{{vmcsaprov|Interest Payment (VM)}} under the {{vmcsa}} for a working example. | |||
Latest revision as of 12:58, 6 January 2020
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In maths, the absolute value of a number is its positive value, whether the number itself is positive or negative. So the absolute value of +10 is +10, but the absolute value of -10 is also +10.
What possible use is the absolute value? Well, it is quite handy when talking about payments in a derivative contract which, if positive, are payable from A to B and, if negative, are payable from B to A. In such a case we can say “the party in question will pay the absolute value of the payment”.
For example if, carelessly, you said: The Calculation Agent will calculate an adjustment payment which, if positive, Party A must pay to Party B and, if negative, Party B will pay to Party A.
Here you would be saying that Party B has to pay a negative amount — but paying a negative amount is the same as receiving a positive amount. That’s not the idea. So in the formulation above, Party A would wind up paying Party B in every situation, whether the amount was positive or negative. This is not what is intended. You can fix it thus: The Calculation Agent will calculate an adjustment payment which, if positive, Party A must pay to Party B and, if negative, Party B will pay the absolute value of that amount to Party A.
Also can come in handy with unexpected things like negative interest rates.
See also
- Interest Payment (VM) under the 2016 VM CSA for a working example.