83,229
edits
Template:How Equity Notional Reset works: Difference between revisions
Template:How Equity Notional Reset works (view source)
Revision as of 13:03, 11 May 2022
, 11 May 2022→How {{eqderivprov|Equity Notional Reset}} works
Amwelladmin (talk | contribs) |
Amwelladmin (talk | contribs) |
||
| (One intermediate revision by the same user not shown) | |||
| Line 1: | Line 1: | ||
===How {{eqderivprov|Equity Notional Reset}} works=== | |||
''Strap yourselves in, kids!'' | ''Strap yourselves in, kids!'' | ||
A | A beginner’s guide to the complex and tortuous world of what happens when your {{eqderivprov|Equity Notional Amount}} is subject to {{eqderivprov|Equity Notional Reset}}. | ||
The short version’s really quite easy: You just restrike the trade at the market value, and pay out the difference in the value of the underlier over the reset period. As follows: | The short version’s really quite easy: You just restrike the trade at the market value, and pay out the difference in the value of the underlier over the reset period. As follows: | ||
| Line 9: | Line 9: | ||
*When the next [[CSPD]] rolls around, the new {{eqderivprov|Equity Notional Amount}} is the {{eqderivprov|Initial Price}} and you do it all over again. | *When the next [[CSPD]] rolls around, the new {{eqderivprov|Equity Notional Amount}} is the {{eqderivprov|Initial Price}} and you do it all over again. | ||
The long | The long version’s a bit of a ball-breaker: | ||
*If {{eqderivprov|Equity Notional Reset}} ({{eqderivprov|5.10}}) applies, then on each {{eqderivprov|Cash Settlement Payment Date}} you have to adjust the {{eqderivprov|Equity Notional Amount}} by the {{eqderivprov|Equity Amount}}. | *If {{eqderivprov|Equity Notional Reset}} ({{eqderivprov|5.10}}) applies, then on each {{eqderivprov|Cash Settlement Payment Date}} you have to adjust the {{eqderivprov|Equity Notional Amount}} by the {{eqderivprov|Equity Amount}}. | ||
*The {{eqderivprov|Equity Amount}} ({{eqderivprov|8.7}}) equals the {{eqderivprov|Equity Notional Amount}} times the {{eqderivprov|Rate of Return}}. | *The {{eqderivprov|Equity Amount}} ({{eqderivprov|8.7}}) equals the {{eqderivprov|Equity Notional Amount}} times the {{eqderivprov|Rate of Return}}. | ||
| Line 17: | Line 17: | ||
*You pay out the {{eqderivprov|Equity Amount}} on the {{eqderivprov|Cash Settlement Payment Date}}, and adjust the {{eqderivprov|Equity Notional Amount}} accordingly. | *You pay out the {{eqderivprov|Equity Amount}} on the {{eqderivprov|Cash Settlement Payment Date}}, and adjust the {{eqderivprov|Equity Notional Amount}} accordingly. | ||
It’s like converting a posted | It’s like converting a posted [[variation margin]] into an absolute obligation by restriking the {{eqderivprov|Transaction}}. | ||