Reset (finance)
Encyclopedia
Reset also known as fixing is a generic concept in the financial markets, meaning the determination and recording of a reference rate
, usually in order to calculate the settlement value of a periodic payment schedule between two parties.
Resets are most commonly used in Interest rate swap
s, to determine the value of the floating rate payment for each period. The parties will have agreed a source for the reference rate (usually a named screen on an information vendors system, though any public domain source will do, such as a newspaper or government publication). Fixing involves looking up the reference value on the agreed date, recording, then computing a payment based on the rate.
Fixing can often change the value of a financial instrument, and can be difficult to encode in the software models used to price such instruments. Other examples of fixing are in average rate options, where the underlying price of the option is an average of some kind, also in -ONIA type swaps, where periodic payments are made on the basis of average overnight interest rates.
Reset Finance is also a comparison website for UK sub prime lending and debt management solutions.
Reset Finance
Reference rate
A reference rate is a rate that determines pay-offs in a financial contract and that is outside the control of the parties to the contract. It is often some form of LIBOR rate, but it can take many forms, such as a consumer price index, a house price index or an unemployment rate...
, usually in order to calculate the settlement value of a periodic payment schedule between two parties.
Resets are most commonly used in Interest rate swap
Interest rate swap
An interest rate swap is a popular and highly liquid financial derivative instrument in which two parties agree to exchange interest rate cash flows, based on a specified notional amount from a fixed rate to a floating rate or from one floating rate to another...
s, to determine the value of the floating rate payment for each period. The parties will have agreed a source for the reference rate (usually a named screen on an information vendors system, though any public domain source will do, such as a newspaper or government publication). Fixing involves looking up the reference value on the agreed date, recording, then computing a payment based on the rate.
Fixing can often change the value of a financial instrument, and can be difficult to encode in the software models used to price such instruments. Other examples of fixing are in average rate options, where the underlying price of the option is an average of some kind, also in -ONIA type swaps, where periodic payments are made on the basis of average overnight interest rates.
Reset Finance is also a comparison website for UK sub prime lending and debt management solutions.
Reset Finance