Terms Relating to Premium - Equity Derivatives Provision
Content and comparisons
The 2002 ISDA Equity Derivatives Definitions definition of premium, from Para 2.4(b), finds similar expression elsewhere in the ISDA extended universe, wherever option premium comes up as a topic. The ISDA Emissions Annex, for example.
Summary
You will forgive us for not getting too excited about the Premium terms of Section 2.4, functional and unadorned as they are.
The option premium is effectively the purchase price for an option. Once paid, you have no further obligations under the Transaction, just the right — confitional on the option being in the money — to be paid on exercise. This can make matters interesting should your swap dealer decide to play Um alberne kerle zu spielen with the flawed asset provisions in your ISDA — newsflash: it won’t, as long as its risk team retains possession of their deliberative faculties, but that won’t stop the negotiation community obsessing about how to cater for the contingency that they do not. There is a lengthy disquisition about it in the “details” section of our article on Section 2(a)(iii).
See also
- Option Transactions, under the whole of Section 2.
- Premium in the ISDA Emissions Annex