Template:M comp disc 1992 ISDA 6(e)(i): Difference between revisions
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''Compare with {{isdaprov|Close-out Amount}} under the {{2002ma}}'' | ''Compare with {{isdaprov|Close-out Amount}} under the {{2002ma}}'' | ||
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: | |||
:(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”. | |||
:(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}}). | |||
:(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. | |||
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. | |||
Revision as of 09:47, 30 October 2020
Compare with Close-out Amount under the 2002 ISDA
The 1992 ISDA close out methodology is hideous. In a nutshell, what you need to know (if “it being hideous” really isn’t enough for you) is:
- (i) You should ignore First Method: No-one in their right mind would ever agree to the First Method, so you don’t need to worry about that. (It provides that on an Event of Default, the Defaulting Party never gets paid anything, even if the total mark-to-market value of its exposure under the 1992 ISDA 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”.
- (ii) Market Quotation basically defaults to Loss: Market Quotation basically defaults to Loss anyway, seeing as if you can’t get at least three Reference Market-maker quotations, Market Quotation is deemed undeterminable and the Non-defaulting Party determines its Loss instead (only excluding Unpaid Amounts, wince they are excluded from Market Quotation).
- (iii) Market Quotation and Loss are needlessly inconsistent: As noted above, for reasons best known to 1992’s ISDA’s crack drafting squad™ (and look: it was a gentler, more naive time, when complexity for the sake of it was half the fun of derivatives practice) Market Quotation excludes Unpaid Amounts, where as Loss includes them, and Loss is calculated in the Termination Currency Equivalent, whereas Market Quotation is not.
The above in a nutshell: If you can’t see you r way clear to using a 2002 ISDA — and some Americans cannot — select "Second Method and Loss" and have done with it.