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.


Filed Under:

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious debt when government leaders use borrowed funds in ways that don't benefit or even oppress citizens. Some legal scholars argue that successor governments should not be held accountable for odious debt incurred by earlier regimes, but there is no consensus on how odious debt should actually be treated.
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the acquiring company will make an offer for the outstanding shares.
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by additional investment would not warrant the expense. A harvest strategy is employed when a line of business is considered to be a cash cow, meaning that the brand is mature and is unlikely to grow if more investment is added.
Trading Center