Agreement Value Method
 |
Definition of 'Agreement Value Method'The most common of three official methods established by the International Swaps and Derivatives Association for calculating termination payments on a prematurely ended swap. The agreement value method is based on the terms available for a replacement swap because the counterparty that did not cause the early termination may need to enter into a replacement swap. Replacement swaps are used to calculate termination payments because changes in market conditions since the initial (now-terminated) swap were entered will mean that the terms of that swap are no longer available. The replacement swap will likely have different terms and different interest rates. |
 |
Investopedia explains 'Agreement Value Method'The indemnification method and the formula method are alternatives to the agreement value method, but these are not used extensively. A termination event such as an illegality, tax event, tax event upon merger or credit event will cause a swap agreement to be terminated early, as will an event of default such as bankruptcy or failure to pay. If a swap is terminated early, both parties will cease to make the agreed-upon payments, and the counterparty who caused the early termination may be required to pay damages to the other counterparty. |
Related Definitions
Articles Of Interest
-
The Barnyard Basics Of Derivatives
This tale of a fictional chicken farm is a great way to learn how derivatives work in the market. -
Are Derivatives Safe For Retail Investors?
These vehicles have gotten a bad rap in the press. Find out whether they deserve it. -
An Introduction To Swaps
Learn how these derivatives work and how companies can benefit from them. -
An Introduction To Structured Products
Learn a simple way to bring the benefits of derivatives into your portfolio. -
How Companies Use Derivatives To Hedge Risk
Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices. -
5 Equity Derivatives And How They Work
These derivatives allow investors to transfer risk, but there are many choices and factors that investors must weigh before buying in. -
Credit Default Swaps: What Happens In A Credit Event?
The credit crisis of 2008 prompted important changes to the settlement of credit default swaps. -
Derivatives 101
Learn how to use this type of investment as an alternative way to participate in the market. -
A Guide To Real Estate Derivatives
These instruments provide exposure to the real estate market without having to buy and sell property. -
America's Loss Is The Currency Market's Gain
The Smithsonian Agreement hurt the U.S. in the short-term, but was necessary in furthering real market-driven exchange rates.
Free Annual Reports
