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| ''Compare with {{isdaprov|Close-out Amount}} under the {{2002ma}}''
| | {{isda 6(e)(i) comp|isda92prov}} |
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| The {{1992ma}} [[close out methodology]] is hideous. In a nutshell, what you need to know (if “it being hideous” really isn’t enough for you) is:
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| :(i) '''You should ignore {{isdaprov|First Method}}''': No-one in their right mind would ever agree to the {{isdaprov|First Method}}, so you don’t need to worry about that. (It provides that on an {{isdaprov|Event of Default}}, the {{isdaprov|Defaulting Party}} never gets paid anything, even if the total mark-to-market value of its exposure under the {{1992ma}} is massively in its favour). That ghastly [[FT book about derivatives]] describes this as “a [[limited two-way payments]] clause” which, to this humble mind, is rather like calling Long John Silver a “limited two-legged pirate”.
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| :(ii) '''{{isdaprov|Market Quotation}} basically defaults to {{isdaprov|Loss}}''': {{isdaprov|Market Quotation}} basically defaults to {{isdaprov|Loss}} anyway, seeing as if you can’t get at least three {{isdaprov|Reference Market-maker}} quotations, {{isdaprov|Market Quotation}} is deemed undeterminable and the {{isdaprov|Non-defaulting Party}} determines its {{isdaprov|Loss}} instead (only excluding {{isdaprov|Unpaid Amounts}}, wince they are excluded from {{isdaprov|Market Quotation}}).
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| :(iii) '''{{isdaprov|Market Quotation}} and {{isdaprov|Loss}} are needlessly inconsistent''': As noted above, for reasons best known to 1992’s {{icds}} (and look: it was a gentler, more naive time, when complexity for the sake of it was half the fun of derivatives practice) {{isdaprov|Market Quotation}} ''excludes'' {{isdaprov|Unpaid Amounts}}, where as {{isdaprov|Loss}} ''includes'' them, and {{isdaprov|Loss}} is calculated in the {{isdaprov|Termination Currency Equivalent}}, whereas {{isdaprov|Market Quotation}} is not.
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| The above in a nutshell: If you can’t see you r way clear to using a {{2002ma}} — and some Americans cannot — select "{{isdaprov|Second Method}} and {{isdaprov|Loss}}" and have done with it.
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Latest revision as of 19:10, 24 January 2024
Compare with Close-out Amount under the 2002 ISDA
The 1992 ISDA close-out methodology is hideous. They overhauled whole process of closing out an ISDA, soup to nuts, in the 2002 ISDA, and is now much more straightforward — as far as you could ever say that about ISDA’s crack drafting squad™’s output. But a large part of the fanbase — that part west of Cabo da Roca — sticks with the 1992 ISDA. Odd.