Page 21 - PRIAA Glossary

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CALCULATION AGENT
The party designated as such in a derivative transaction.
The calculation agent is tasked with the making of determinations and notifications relating to any adjustments, disruptions, valuations and settlements that occur throughout the life of the transaction. In most cases, the calculation agent will be one of the parties to the transaction. The calculation agent will usually be a professional market maker (e.g., an investment bank).
CALCULATION PERIOD
The number of days between payment dates or between
the effective date and the first payment date. A calculation period is typically adjusted for payment dates that are
bad business days but may also be unadjusted. Normally indicates the period for which financing costs/debt servicing are calculated/accrued.
CALENDAR SPREAD
An option trading strategy consisting of the simultaneous purchase and sale of two options of the same type and strike price but with different expiration dates. Also known as a “horizontal spread” or “time spread”.
CALIBRATION
A process by which the parameters of a complex financial model are adjusted so that the model’s valuations of benchmark financial instruments match the market- observed prices for those instruments, to an acceptable level of tolerance. The model can then be used to price more exotic financial instruments.
CALL OPTION
A contract that grants its purchaser the right, but not the obligation, to buy the underlying instrument at a specified strike price on (European option) or before (American option) the expiration date. Compare with “put option”.
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