Final Price - Equity Derivatives Provision: Difference between revisions
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{{eqderivanat|5.9}} | {{eqderivanat|5.9}} | ||
Note that Final Price isn't necessary the ''final'' | Note that {{eqderivprov|Final Price}} isn't necessary the ''final'' {{eqderivprov|Final Price}}: you determine a fresh {{eqderivprov|Final Price}} on every {{eqderivprov|Valuation Date}}, as of the {{eqderivprov|Valuation Time}}, and they feed into the {{eqderivprov|Cash Settlement}} (or {{eqderivprov|Equity Notional Reset}}) process, whereby one party pays out the movement price of the underlier over the period since the last {{eqderivprov|Valuation Date}}. | ||
Thus, today’s {{eqderivprov|Final Price}} becomes the {{eqderivprov|Initial Price}} for the purposes of the next {{eqderivprov|Valuation Date}}, and so on and so on — yesterday’s rooster is today’s feather duster. | |||
Only on the ''final'' {{eqderivprov|Final Price}} does the {{eqderivprov|Transaction}} terminate. | |||
{{Equity swaps versus forwards}} | {{Equity swaps versus forwards}} | ||
{{Seealso}} | {{Seealso}} | ||
*[[Volume Weighted Average Price]] ([[VWAP]]) | *[[Volume Weighted Average Price]] ([[VWAP]]) | ||
*{{eqderivprov|Relevant Price}} | *{{eqderivprov|Relevant Price}} | ||
Revision as of 14:46, 24 September 2019
Template:Eqderivanat Note that Final Price isn't necessary the final Final Price: you determine a fresh Final Price on every Valuation Date, as of the Valuation Time, and they feed into the Cash Settlement (or Equity Notional Reset) process, whereby one party pays out the movement price of the underlier over the period since the last Valuation Date.
Thus, today’s Final Price becomes the Initial Price for the purposes of the next Valuation Date, and so on and so on — yesterday’s rooster is today’s feather duster.
Only on the final Final Price does the Transaction terminate.
On the difference between Final Price and Relevant Price
Final Price is defined in Article 5 of the 2002 ISDA Equity Derivatives Definitions and is germane therefore to Equity Swap Transactions only and not, say, Forward Transactions (which, circuitously, rely instead on Relevant Price, albeit defined in a similar way).
The Final Price also has separately broken-out scenarios for Basket Transactions (being just the weighted sums of the individual components in the basket). Relevant Price doesn't bother to break these out — whether that is a function of the fact that Share Basket Forwards behave differently to Basket Swaps, or just because the drafting committee was losing the will to live, is a question to which we have yet to get to the bottom.
Don’t hold your breath.