Investopedia

Continue to Site »

Formula Method

Filed Under » , ,
Dictionary Says

Definition of 'Formula Method '

A technique for calculating termination payments on a prematurely ended swap. Termination payments are used to compensate the party who did not cause the swap to end early for its financial loss. Because they are not very liquid, currency swaps tend to use the formula method, but it is one of the less common methods for calculating damages.
Investopedia Says

Investopedia explains 'Formula Method '

Of the three official methods for calculating termination payments as established by the International Swaps and Derivatives Association, the agreement value method, which is based on the terms available for a replacement swap, is most common. The third method, the indemnification method, is not often used. A swap may be terminated early if a termination event such as an illegality, tax event, tax event upon merger or credit event occurs. An event of default, such as bankruptcy or failure to pay, can also cause early termination.

Articles Of Interest

  1.

    Careers In The Derivatives Market

    The growing interest in and complexity of these securities means opportunities for job seekers.

  2. The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.

  3. Are Derivatives Safe For Retail Investors?

    These vehicles have gotten a bad rap in the press. Find out whether they deserve it.

  4. An Introduction To Swaps

    Learn how these derivatives work and how companies can benefit from them.

  5. An Introduction To Structured Products

    Learn a simple way to bring the benefits of derivatives into your portfolio.

  6. How Companies Use Derivatives To Hedge Risk

    Derivatives can reduce the risks associated with changes in foreign exchange rates, interest rates and commodity prices.

  7. Credit Default Swaps: What Happens In A Credit Event?

    The credit crisis of 2008 prompted important changes to the settlement of credit default swaps.

  8. Making It Big On Wall Street

    Read about some of the most glamorous Wall Street jobs and what it takes to land one.

  9. Quants: The Rocket Scientists Of Wall Street

    Blend math, finance and computer skills to command a high - and well deserved - salary.

  10. Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  2. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  3. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  4. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  5. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.

  6. Lease To Own

    An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time.
Trading Center