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Derivatives | C

Calculation Agent

The party that is charged with the task of calculating the amounts payable under a swap agreement or the value of a derivative contract. For example, in the case of a credit default swap, the calculation agent must determine, upon the occurrence of a credit event, the current market value of the reference obligation to find out if there has been a material decline in value. Almost always, the dealer who is selling the derivative product prefers to assume the role of a calculation agent. However, this raises a potential conflict of interest as his determination will understandably be biased.

In general, in the event that a party to a derivative contract doesn’t agree with a determination made by the calculation agent, the party has the right to require that the determination be carried out by a disinterested third party that is a dealer of a respective derivative instrument. The original calculation agent is typically asked to pick the disinterested third party, but only after consultation with the disputing party.

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