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As does the idea that a disinterested dealer will have any interest in offering a price ''at all''. Why would it? What does it have to gain from reverse engineering a historical market value for a a security it will not actually get to trade? It will have its own [[Legal eagle|legal eagles]], they will be fearful, as all legal eagles are, and will worry about getting sued, or being joined in litigation. Their counsel will be to ''not get involved''. So good luck with that leading reference dealer. | As does the idea that a disinterested dealer will have any interest in offering a price ''at all''. Why would it? What does it have to gain from reverse engineering a historical market value for a a security it will not actually get to trade? It will have its own [[Legal eagle|legal eagles]], they will be fearful, as all legal eagles are, and will worry about getting sued, or being joined in litigation. Their counsel will be to ''not get involved''. So good luck with that leading reference dealer. | ||
This is quite different from the case of your actual dealer. It will base its marks on where it has actually executed its own [[Delta-hedging|delta-hedge]]. In other words, these are prices at which it has actually traded, and for which it has off-setting liability. Why would it ever accept a hypothetical price from a disinterested third party over its own actually traded price? | This is quite different from the case of your actual dealer. It will base its marks on where it has actually executed its own [[Delta-hedging|delta-hedge]]. In other words, these are prices at which it has actually traded, and for which it has off-setting liability. Why would it ever accept a hypothetical price from a disinterested third party over its own, actually traded, price? This not hypothetical: it stands to lose real money if it does. | ||
The real answer to calculation agent | ==== All hail the commercial imperative ==== | ||
The real answer to the calculation agent dispute conundrum is the [[commercial imperative]]. Dealers trade countless swaps every day. Their business viability depends on satisfied existing customers coming back and placing ''more'' orders. Customers who have had their faces ripped off don’t do that. | |||
This is basic business common sense. Still, we sense it will be a foreign country to buyside legal-eagles out there who will never be persuaded that swap dealers can behave like decent human beings, even if their own commercial interest encourages it. We know there are, in fact: their Byzantine valuation dispute mechanisms pepper ISDA portfolios from New York to Tokyo. | |||
If you are one, here is a question: ''when did your client last actually invoke a dispute mechanism in anger?'' | |||
Do write in and let us know. | |||
{{sa}} | {{sa}} | ||