2002 ISDA Equity Derivatives Definitions
A Jolly Contrarian owner’s manual™
Resources and navigation
Section 2.4 in a Nutshell™
Use at your own risk, campers!
Full text of Section 2.4
. Terms Relating to Premium
- 2.4(a) Payment of Premium. In respect of an Option Transaction, Buyer shall pay Seller the Premium on the Premium Payment Date.
- 2.4(b) Premium. “Premium” means, in respect of an Option Transaction, the amount specified or otherwise determined as provided in the related Confirmation. If a Premium per Option is specified in the related Confirmation, the Premium shall be the product of the Premium per Option and the Number of Options.
- 2.4(c) Premium Payment Date. “Premium Payment Date” means, in respect of an Option Transaction, the date specified or otherwise determined as provided in the related Confirmation or, if such date is not a Currency Business Day for the currency in which the Premium is payable, the next following Currency Business Day. If the Premium Payment Date is not specified in the related Confirmation, the Premium Payment Date will fall on the date that is one Settlement Cycle following the Trade Date, or if such date is not a Currency Business Day, the next following Currency Business Day.
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.
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).