Page 30 - PRIAA Glossary

CLOSEOUT RISK
The risk that closeout proceedings pose to either party, in
a set of bilateral transactions and in the event of a default in one of the parties. Closeout risk can consist of a variety of factors, including market risk (e.g., the residual contract value, value of collateral), liquidity risk (e.g., the risk that bilateral contracts cannot be replaced during closeout) and correlation risk (e.g., depending on whether the residual contract is valued at replacement cost or risk-free cost, the correlation between exposure and undefaulted party can impact the contract value determined at closeout).
CLOSING PRICE (OR RANGE)
The price (or price range) recorded that takes place in the final moments of a day’s trade that are officially designated as the “close”.
CLOSING TRADE
A trade which is used either to partly offset an open position or to fully offset it and close it out.
CO-GENERATION
A term used to describe plants (power generation or certain refinery processes) in which waste heat is recycled to produce electricity or steam—or to heat material prior to processing. See also “combined heat and power (CHP)”.
COLLAR
A financial instrument trading strategy involving the purchase of an out-of-the-money put option and the sale
of an out-of-the-money call option on the long position for the underlying and at the same maturity. A collar allows for limited upside gains and limited downside losses.
COLLATERAL
An acceptable asset or cash posted to/by a counterparty used as a credit risk mitigation tool. Over-the-counter (OTC) derivative collateralisation arrangements are typically documented using the English law or New York law Credit Support Annex (CSA) to the ISDA master agreement. These annexes detail the economic and operational characteristics of the collateral relationship.
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