Calculation Agent

DEFINITION of 'Calculation Agent'

An entity that determines the price of an investment product such as a swap. A calculation agent calculates the value of a derivative or the amount owing from each party. The agent also establishes the price for a structured product and may act as its guarantor and issuer. The calculation agent is not a fiduciary, but is expected to avoid conflicts of interest and act in good faith. Its decisions are considered binding. Any disagreement over the calculation agent's decisions must be resolved by a disinterested third-party dealer.

BREAKING DOWN 'Calculation Agent'

In the credit default swap market, the calculation agent establishes the contract's cash settlement price to give the investors an alternative to a physical settlement. This price will be based on the highest available bids from market makers. The calculation agent, who is typically either the seller or a third party, sometimes takes on a number of other roles in more complex transactions.

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