Premium - Emissions Annex Provision
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EU Emissions Allowance Transaction Annex to the 2005 ISDA Commodity Definitions A Jolly Contrarian owner’s manual™
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Comparison See our natty emissions comparison table between the IETA, EFET and ISDA versions of emissions trading docs
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Overview
The definition of “Premium” in the 2021 ISDA Interest Rate Derivatives Definitions (and its predecessor the 2006 ISDA Definitions) finds expression elsewhere in the ISDA extended universe in the 2002 ISDA Equity Derivatives Definitions (Para 2.4(b), and in the ISDA Emissions Annex (Premium) and, no doubt, in other places too.
Summary
A workaday definition that captures the option premium you pay to buy an option.
Once paid, you have no further obligations under the Transaction, just the right — confitional on the option being in the money — to be paid on exercise. This can make matters interesting should your swap dealer decide um alberne kerle zu spielen with the flawed asset provisions in your ISDA — though, newsflash: it won’t, as long as its risk team retains possession of their deliberative faculties — but that won’t stop the negotiation community obsessing about how to cater for the contingency that they do not.
For bookish types, there is a lengthy disquisition about it in the premium section of our article on Section 2(a)(iii).
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- The JC’s famous Nutshell™ summary of this clause
See also
- Option premium
- Section 2(a)(iii)
- Premium in the 2002 ISDA Equity Derivatives Definitions