The notional amount for a future, option, or other derivative instrument that is settled with physical delivery is the quantity of the underlier to which the contract applies. A futures contract on 1000 bushels of corn has a notional amount of 1000 bushels. Cash settled derivative instruments make payments according to contractually specified formulas. These depend upon some quantity of an underlier100,000 barrels of oil, 500,000 USD, 100 shares of IBM stock, etc. That quantity is the notional amount. For example, a cash settled call option on 100,000 barrels of crude oil has 100,000 barrels as its notional amount. An interest rate swap might entail two parties exchanging fixed-rate payments for floating rate payments linked to 6-month USD Libor, each based on a notional amount of USD 10MM.
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