Template:How Equity Notional Reset works: Difference between revisions

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====How {{eqderivprov|Equity Notional Reset}} works====
===How {{eqderivprov|Equity Notional Reset}} works===
''Strap yourselves in, kids!''
''Strap yourselves in, kids!''


A beginner's guide to the complex and tortuous world of what happens when your {{eqderivprov|Equity Notional Amount}} is subject to {{eqderivprov|Equity Notional Reset}}.
A beginner’s guide to the complex and tortuous world of what happens when your {{eqderivprov|Equity Notional Amount}} is subject to {{eqderivprov|Equity Notional Reset}}.


The short version’s really quite easy: You just restrike the trade at the market value, and pay out the difference in the value of the underlier over the reset period. As follows:
The short version’s really quite easy: You just restrike the trade at the market value, and pay out the difference in the value of the underlier over the reset period. As follows:
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*When the next [[CSPD]] rolls around, the new {{eqderivprov|Equity Notional Amount}} is  the {{eqderivprov|Initial Price}} and you do it all over again.
*When the next [[CSPD]] rolls around, the new {{eqderivprov|Equity Notional Amount}} is  the {{eqderivprov|Initial Price}} and you do it all over again.


The long version's a bit of a ball-breaker:
The long version’s a bit of a ball-breaker:
*If {{eqderivprov|Equity Notional Reset}} ({{eqderivprov|5.10}}) applies, then on each {{eqderivprov|Cash Settlement Payment Date}} you have to adjust the {{eqderivprov|Equity Notional Amount}} by the {{eqderivprov|Equity Amount}}.
*If {{eqderivprov|Equity Notional Reset}} ({{eqderivprov|5.10}}) applies, then on each {{eqderivprov|Cash Settlement Payment Date}} you have to adjust the {{eqderivprov|Equity Notional Amount}} by the {{eqderivprov|Equity Amount}}.
*The {{eqderivprov|Equity Amount}} ({{eqderivprov|8.7}}) equals the {{eqderivprov|Equity Notional Amount}} times the {{eqderivprov|Rate of Return}}.
*The {{eqderivprov|Equity Amount}} ({{eqderivprov|8.7}}) equals the {{eqderivprov|Equity Notional Amount}} times the {{eqderivprov|Rate of Return}}.

Latest revision as of 13:03, 11 May 2022

How Equity Notional Reset works

Strap yourselves in, kids!

A beginner’s guide to the complex and tortuous world of what happens when your Equity Notional Amount is subject to Equity Notional Reset.

The short version’s really quite easy: You just restrike the trade at the market value, and pay out the difference in the value of the underlier over the reset period. As follows:

The long version’s a bit of a ball-breaker:

It’s like converting a posted variation margin into an absolute obligation by restriking the Transaction.