Cash Settlement of Equity Swap Transactions - Equity Derivatives Provision: Difference between revisions

Cash Settlement of Equity Swap Transactions - Equity Derivatives Provision (view source)

Revision as of 13:02, 14 November 2012

115 bytes removed , 14 November 2012

→‎Commentary

Amwelladmin

Bureaucrats, Interface administrators, Administrators

82,882

edits

@@ Line 4: / Line 4: @@
 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
+'''{{eqderivprov|Price Return}}''': The {{eqderivprov|Price Return}} is simply a function of the price at the beginning and end, and takes no account of declared dividends or other income or distributions received off the underlier in the mean time. It is simply 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}}.
+If it's positive, the {{eqderivprov|Equity Amount Payer}} pays it to the {{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).
+'''{{eqderivprov|Total Return}}''': is the {{eqderivprov|Price Return}}, but adjusted for income.
 {{eqderivanatomy}}