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{{2002 ISDA Equity Derivatives Definitions Section 8.6 TOC}} | {{2002 ISDA Equity Derivatives Definitions Section 8.6 TOC}} | ||
{{eqderivsnap|8.6}} | {{eqderivsnap|8.6}} | ||
====Commentary==== | |||
Equity Swap Transactions can be settled either by reference to {{eqderivprov|Price Return}} or {{eqderivprov|Total Return}}, but not [http://en.wikipedia.org/wiki/Voodoo_Child_(Slight_Return) Slight Return]. | |||
'''{{eqderivprov|Price Return}}''': The {{eqderivprov|Price Return}} is the subtraction of the {{eqderivprov|Settlement Price}} from the {{eqderivprov|Initial Price}}, and | |||
*(if the underlier ''increases'' in value over the life of the Transaction) be a '''positive''' number; or | |||
*(if the underlier ''decreases'' in value over the life of the Transaction) be a '''negative''' number. | |||
If it's positive, the {{eqderivprov|Equity Amount Payer}} pays it tot he {{eqderivprov|Equity Amount Receiver}}. If it's negative, the {{eqderivprov|Equity Amount Receiver}} pays the absolute value to the {{eqderivprov|Equity Amount Payer}}. | |||
'''{{eqderivprov|Total Return}}''': The {{eqderivprov|Total Return}} formulation is: | |||
{{eqderivprov|Equity Notional Amount}} * ({{eqderivprov|Settlement Price}}/{{eqderivprov|Initial Price}}) | |||
Since both numerator and denominator must be positive the Total Return cannot be negative, but may be greater or less than 100% (and so can be converted into a positive or negative number by subtracing from 1). | |||
{{eqderivanatomy}} | {{eqderivanatomy}} |