Category: DERIVATIVES

Collateral Choice Option

Derivative transactions may include collateral offered by the parties involved. These transactions require both parties to document the security provided by either one. Therefore, they may use a credit support annex (CSA). This document may give rise to a collateral choice option. Before discussing this option, it is crucial to …

Option Pricing Model in Illiquid Markets

Black-Scholes-Merton (BSM) is an option pricing model for valuing European options. It was developed in the 1970s by Fisher Black, Myron Scholes, and Robert Merton, of whom two were awarded the Nobel Prize in Economic Sciences in 1997 for their work. The BSM model has become one of the most …

Variance and Volatility Swaps

Forward contracts are a crucial part of hedging and speculation for investors. These contracts allow two parties to buy or sell an asset at a specific price and future time. Usually, they also include the commodity, delivery date, and amount for the agreement. Forward contracts may come in many forms …

Sales and Purchase Agreement

Financial transactions are the essence of a business. These transactions allow companies and other entities to acquire products or services. Once they do so, they can resell them to generate profits. While most transactions are straightforward, they may also require a legal form. For that purpose, sales and purchase agreements …

Valuation Adjustment Mechanism (VAM): Definition, Agreement, Example, Usage

The term mergers and acquisitions (M&A) refers to the consolidation of companies through financial transactions. This process involves one company acquiring another company’s shares. Several terms and conditions may apply to these transactions. However, these terms may differ from one market to another. The valuation adjustment mechanism is unique to …