# How Does the Close-Out Amount in the 2002 ISDA Differ from Market Quotation? ▴ Question

**Published:** 2025-08-01
**Categories:** Question

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## Concept

The distinction between the [2002 ISDA Master Agreement](https://prime.greeks.live/area/2002-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)’s Close-Out Amount and the preceding Market Quotation methodology is a foundational shift in the architecture of derivatives risk management. This evolution was born from the crucible of market crises, where the rigid, prescriptive nature of Market Quotation proved insufficient for the dynamic and often illiquid realities of a major [counterparty default](https://prime.greeks.live/area/counterparty-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). Understanding this transition requires moving past a simple line-item comparison of legal clauses.

It demands an appreciation for the operational realities of a trading desk tasked with unwinding complex, multi-faceted positions in a stressed environment. The core of the matter lies in a move from a rigid, externally referenced polling process to a flexible, internally-driven but externally-defensible calculation standard.

Market Quotation, as codified in the [1992 ISDA Master Agreement](https://prime.greeks.live/area/1992-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), was an attempt to achieve objective fairness through a structured, almost mechanical, process. The protocol required the non-defaulting party to poll a specific number of “[Reference Market-makers](https://prime.greeks.live/area/reference-market-makers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” ▴ typically four leading dealers in the relevant asset class ▴ to obtain firm quotes for a replacement transaction. The resulting value was derived from these external data points.

This system functions effectively in stable, liquid markets where such quotes are readily available and reflect a consensus view of value. Its architectural premise is one of trust in a liquid, functioning inter-dealer market to provide an unbiased replacement cost.

> The 2002 ISDA’s Close-Out Amount provides a flexible, principle-based valuation framework, contrasting with the rigid, quote-driven process of the 1992 Agreement’s Market Quotation.

The Close-Out Amount under the 2002 ISDA Master Agreement represents a paradigm shift in both philosophy and execution. It acknowledges that in a true market crisis, the very Reference Market-makers one is required to poll may be unwilling or unable to provide commercially realistic, or any, quotations. The 2002 framework replaces the prescriptive polling requirement with a guiding principle ▴ the determining party must act in good faith and use [commercially reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) procedures to produce a [commercially reasonable result](https://prime.greeks.live/question/how-do-courts-interpret-commercially-reasonable-procedures-in-close-out-amount-calculations/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This empowers the non-defaulting party to use a far broader array of information to determine its true economic loss.

This includes, but is not limited to, third-party quotations, relevant [market data](https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and, critically, information from its own internal pricing models and systems. This change moves the locus of calculation from an external, often unavailable, panel to the internal, sophisticated valuation infrastructure of the [determining party](https://prime.greeks.live/area/determining-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), while simultaneously imposing a higher standard of objective reasonableness on the outcome.

A pivotal aspect of this evolution is the treatment of factors beyond a simple mid-market price. The [Close-Out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) explicitly allows for the inclusion of costs, losses, or gains that would arise from liquidating or re-establishing the hedge related to the terminated transaction. Furthermore, legal precedent has affirmed that the Close-Out Amount must take into account the economic effects of the termination itself, including the creditworthiness of the determining party when seeking a replacement.

This stands in contrast to the “value clean” approach sometimes associated with the 1992 Agreement, where such considerations were often debated. The 2002 Agreement codifies the economic reality that replacing a derivative is not a theoretical exercise; it involves real costs, funding considerations, and credit assessments that must be factored into the final calculation to make the [non-defaulting party](https://prime.greeks.live/area/non-defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) whole.

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## Strategy

The strategic decision by the International [Swaps and Derivatives](https://prime.greeks.live/area/swaps-and-derivatives/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Association (ISDA) to introduce the Close-Out Amount was a direct response to systemic vulnerabilities exposed during periods of acute market stress. The limitations of the [Market Quotation](https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) method became starkly apparent when markets lacked the liquidity and stability to support its rigid procedural requirements. In a crisis, obtaining multiple firm quotes from leading dealers for the book of a defaulted entity is often a practical impossibility.

This created significant legal and financial uncertainty, potentially forcing parties to fall back to the “Loss” calculation method, which itself carried a different set of interpretive challenges. The Close-Out Amount was engineered as a more resilient, flexible, and commercially pragmatic solution designed to function effectively under the most adverse market conditions.

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## A Comparative Analysis of Valuation Protocols

The strategic differences between the two methodologies are best understood through a direct comparison of their core operational components. The architectural choices in each framework reflect a different philosophy regarding the source of valuation authority and the definition of a fair outcome.

### Table 1 ▴ Comparison of Market Quotation and Close-Out Amount

| Feature | Market Quotation (1992 ISDA) | Close-Out Amount (2002 ISDA) |
| --- | --- | --- |
| Valuation Source | Primarily external; relies on quotations from four Reference Market-makers. | Flexible; allows use of quotations, relevant market data, and internal models. |
| Procedural Standard | Rigid and prescriptive; must attempt to obtain a specific number of quotes. | Principle-based; must use “commercially reasonable procedures”. |
| Outcome Standard | Implied standard of a fair market price based on quotes. | Explicit requirement to produce a “commercially reasonable result”. |
| Creditworthiness Consideration | Generally assumed to be on a “clean” basis, without adjusting for the credit of the parties. | Explicitly allows for the inclusion of the determining party’s creditworthiness in obtaining a replacement. |
| Treatment of Costs | Focused on the replacement cost of the transaction itself. | Broadly includes all losses and costs, including funding and hedging costs. |
| Legal Standard of Conduct | Often interpreted as a standard of “rationality”. | A higher standard of objective “commercial reasonableness”. |

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## What Are the Strategic Implications for the Determining Party?

The shift to Close-Out Amount fundamentally alters the strategic calculus for a non-defaulting party. It confers greater flexibility and control over the valuation process, which is a significant advantage in a chaotic market. The ability to leverage internal, sophisticated pricing models means the party is not held hostage by the absence of external quotes. This allows for a valuation that can more accurately reflect the true, nuanced economic reality of the terminated portfolio, including complex and illiquid positions that defy simple quotation.

> By permitting the use of internal models and a wider range of market data, the Close-Out Amount empowers the non-defaulting party to generate a more accurate valuation during market turmoil.

This empowerment, however, is coupled with a higher burden of proof. The standard of “commercial reasonableness” is an objective one and more stringent than the “rationality” standard sometimes applied to the 1992 Agreement’s Loss calculation. A determining party must be prepared to defend its procedures and its final calculation in court. This necessitates a strategic focus on documentation and process integrity.

Every decision, every piece of data used, and every model assumption must be logged and justified as part of a robust, auditable workflow. The strategy is one of empowered, but accountable, valuation.

- **Documentation Strategy** The determining party must maintain a meticulous record of all information considered, including quotes sought but not received, market data feeds, [internal model](https://prime.greeks.live/area/internal-model/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) parameters, and justifications for the weighting of each component. 

- **Procedural Integrity** The valuation process should be systematic and consistent with internal policies that are themselves designed to be commercially reasonable. Ad-hoc or inconsistent procedures invite legal challenges. 

- **Defensibility** The ultimate goal is to produce a valuation that a neutral third party, such as a judge or arbitrator, would find to be commercially reasonable under the prevailing market conditions at the time of termination. 

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## Execution

The execution of a close-out under the 2002 [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a complex operational procedure that demands a synthesis of legal precision, quantitative analysis, and robust technological infrastructure. It is a departure from the checklist-style approach of Market Quotation, requiring a dynamic and well-documented decision-making process. The focus shifts from merely polling dealers to building a comprehensive and defensible valuation case file.

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## The Operational Playbook

Executing a valuation using the Close-Out Amount methodology is a multi-stage process. A firm’s ability to navigate this process efficiently and effectively is a direct reflection of its operational maturity and the sophistication of its [risk management](https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) framework.

- **Initiation and Team Assembly** Upon an Event of Default, the non-defaulting party designates an [Early Termination Date](https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). Immediately, a dedicated team should be assembled, typically comprising representatives from the trading desk, risk management, legal, and operations. This cross-functional team ensures all facets of the valuation are considered. 

- **Information Gathering Protocol** The team initiates a broad and documented search for relevant valuation inputs. This is a critical phase.

<li>Requests for indicative and firm quotations are sent to third-party dealers. Unlike Market Quotation, there is no minimum number; the focus is on a good-faith effort to gather available external data points.

- Market data systems are queried for all relevant inputs ▴ yield curves, volatility surfaces, credit spreads, and prices for comparable instruments as of the termination date.

- Internal valuation models are run to generate an independent assessment of the portfolio’s value. These models must be those used in the regular course of business for valuing similar transactions.

</li>
- **Applying The Commercial Reasonableness Filter** Each piece of information gathered is assessed for its quality and relevance. An indicative quote that is extremely wide may be given less weight than a [firm quote](https://prime.greeks.live/area/firm-quote/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). Internal model outputs are cross-checked against available market data. The entire process is governed by the objective of producing a commercially [reasonable result](https://prime.greeks.live/question/how-do-courts-interpret-commercially-reasonable-procedures-in-close-out-amount-calculations/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). 

- **Calculation and Justification** The determining party synthesizes the vetted information into a single Close-Out Amount. This is not a simple average. It is a judgment-based calculation where different inputs are weighted according to their perceived quality and relevance. A detailed report is prepared, justifying the final amount and outlining the procedures used to arrive at it. This documentation is the primary defense against any future legal challenge. 

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## Quantitative Modeling and Data Analysis

Consider the close-out of a 10-year US Dollar interest rate swap where the determining party was paying a fixed rate. The counterparty has just defaulted. The determining party must calculate its gain, which will be the Close-Out Amount. The process involves synthesizing multiple data points to arrive at a defensible figure.

### Table 2 ▴ Sample Data Synthesis for Interest Rate Swap Close-Out

| Valuation Input | Value (USD Gain) | Commentary and Justification |
| --- | --- | --- |
| Quote from Dealer A | $1,150,000 | Indicative quote only. Dealer A is unwilling to provide a firm quote due to market volatility. Given less weight. |
| Quote from Dealer B | $1,300,000 | Firm quote for a replacement transaction. Includes an adjustment for Dealer B’s assessment of our credit risk. Given significant weight. |
| Internal Model Value | $1,245,000 | Based on the firm’s standard yield curve discounting model, using mid-market rates from a third-party data provider. This is a baseline, pre-adjustment figure. |
| Funding Valuation Adjustment (FVA) | -$35,000 | Internal calculation of the cost to fund the collateral on the replacement trade over its lifetime. A necessary adjustment for economic reality. |
| Hedging & Liquidation Costs | -$15,000 | Documented costs associated with unwinding the delta hedge (treasury futures) related to the original swap. |
| Final Determined Close-Out Amount | $1,250,000 | A weighted determination. The firm quote from Dealer B is the primary anchor, adjusted slightly by the internal model and incorporating the explicit funding and hedging costs. This is deemed a commercially reasonable result. |

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## Predictive Scenario Analysis

In the autumn of 2008, at the height of the global financial crisis, a mid-sized European bank, “EuroBank,” faced a critical test. A significant counterparty, a US-based hedge fund named “Momentum Capital,” had defaulted on its obligations following the collapse of Lehman Brothers. Momentum Capital’s portfolio with EuroBank was substantial, consisting of standard interest rate swaps, but also a number of more esoteric credit default swaps (CDS) on European corporate debt. The governing document for all transactions was a [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Master Agreement.

The head of EuroBank’s derivatives desk, Dr. Anja Schmidt, immediately initiated the close-out process. Her first action was to assemble her valuation task force. She knew that under the 2002 ISDA, her process would be as important as her final number. Her team began by attempting to source replacement quotes for the entire portfolio.

For the plain vanilla interest rate swaps, they managed to get two indicative quotes, but they were wide and the dealers were unwilling to commit to firm prices given the market chaos. For the CDS portfolio, the situation was worse. The market was effectively frozen. No dealer was willing to quote a price to take on a large, one-sided CDS position referencing corporates whose own survival was now in question. Had EuroBank been operating under a 1992 ISDA’s Market Quotation rules, they would have been at an impasse, likely leading to a protracted legal battle under the “Loss” provision.

However, armed with the Close-Out Amount methodology, Schmidt’s team proceeded down a different path. They meticulously documented their failed attempts to get quotes, establishing the commercial impracticability of relying on external quotations alone. This documentation was crucial. Next, they turned to their internal systems.

EuroBank had a sophisticated quantitative analytics library used for daily marking-to-market and risk management. The quant team was tasked with valuing the entire terminated portfolio using this internal system, based on the market data available at the close of business on the designated [Early Termination](https://prime.greeks.live/area/early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Date. They used the most recent, albeit stressed, credit spread data for the reference entities in the CDS portfolio and the prevailing swap curves. This produced an initial, unadjusted value for the portfolio.

Schmidt knew this was only the starting point. The 2002 ISDA required them to produce a commercially reasonable result, which meant accounting for all real-world costs. Her team calculated a [funding valuation adjustment](https://prime.greeks.live/area/funding-valuation-adjustment/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (FVA), representing the bank’s actual cost of funding the collateral that would be required for any replacement trades. They also calculated a [credit valuation adjustment](https://prime.greeks.live/area/credit-valuation-adjustment/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (CVA) to reflect the cost of entering into a new set of trades with other counterparties, who would price in the risk of dealing with EuroBank itself.

Finally, they added the transaction costs associated with liquidating the hedges they had in place against the Momentum Capital position. Each of these adjustments was calculated using the bank’s standard, audited methodologies and backed by reams of data.

The final Close-Out Amount was a composite figure ▴ the internal model valuation, adjusted for the documented FVA, CVA, and hedging costs. It was a number they believed accurately reflected their total economic loss. They prepared a comprehensive package for Momentum Capital’s administrators, detailing every step of their process, the quotes they had sought, the models they had used, and the justification for each adjustment.

While the administrators initially questioned the amount, the sheer weight of the documentation and the clear adherence to a commercially reasonable procedure made the valuation difficult to challenge. The process provided EuroBank with a defensible, realistic valuation in a market environment where the old rules of Market Quotation would have failed entirely, demonstrating the strategic and operational superiority of the 2002 ISDA framework in a crisis.

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## System Integration and Technological Architecture

Supporting a defensible Close-Out Amount calculation requires a robust and integrated technology stack. The process cannot be managed on spreadsheets. Key systems include:

- **Risk Analytics Engine** This is the core quantitative component. It must be capable of pricing a wide range of derivatives and calculating X-Value Adjustments (XVAs) like CVA and FVA. This could be a proprietary in-house library or a vendor solution like QuantLib integrated into the firm’s systems. 

- **Market Data Infrastructure** Real-time and historical data feeds from providers like Bloomberg, Refinitiv, or other specialized sources are essential. The system must be able to capture and store a snapshot of all relevant market data as of the Early Termination Date. 

- **Audit and Documentation System** A centralized system, potentially a specialized GRC (Governance, Risk, Compliance) platform, is needed to create an immutable audit trail of the entire process. This system must log every quote request, every piece of market data used, every model run, and every decision made by the valuation team. 

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## References

- Fieldfisher. “Close-out Amount differs radically from Market Quotation and Loss.” 20 March 2013.

- International Swaps and Derivatives Association. “ISDA Master Agreements and the calculation of close-out payments.” 2018.

- International Swaps and Derivatives Association. “ISDA Close-out Amount Protocol.” N.d.

- International Corporate Governance Network. “Derivatives Laws and Regulations Close-out Under the 1992 and 2002 ISDA Master Agreements 2025.” 17 June 2025.

- Walker Morris. “ISDA Master Agreements and the calculation of close-out payments.” 19 April 2018.

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## Reflection

The evolution from Market Quotation to Close-Out Amount is more than a change in legal boilerplate; it is a reflection of the market’s own learning process. It codifies the hard-won lesson that in moments of systemic stress, rigid mechanics fail and principled flexibility prevails. This places a significant responsibility on the internal architecture of a financial institution. Your valuation models, your risk systems, and your documentation protocols are no longer just supporting elements; they become central to the enforcement of your contractual rights.

How confident are you that your firm’s operational framework could withstand the scrutiny that comes with executing a multi-billion dollar close-out in a fractured market? The answer to that question defines your readiness for the next crisis.

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## Glossary

<a href="https://prime.greeks.live/area/2002-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## 2002 Isda Master Agreement

Meaning ▴ The 2002 ISDA Master Agreement is the foundational legal document published by the International Swaps and Derivatives Association, designed to standardize the contractual terms for privately negotiated (Over-the-Counter) derivatives transactions between two counterparties globally. </a><a href="https://prime.greeks.live/area/counterparty-default/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Counterparty Default

Meaning ▴ Counterparty Default, within the financial architecture of crypto investing and institutional options trading, signifies the failure of a party to a financial contract to fulfill its contractual obligations, such as delivering assets, making payments, or providing collateral as stipulated. </a><a href="https://prime.greeks.live/area/1992-isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## 1992 Isda Master Agreement

Meaning ▴ The 1992 ISDA Master Agreement serves as a foundational contractual framework in traditional finance, establishing uniform terms and conditions for over-the-counter (OTC) derivatives transactions between two parties. </a><a href="https://prime.greeks.live/area/reference-market-makers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Reference Market-Makers

Meaning ▴ Reference Market-Makers are designated or recognized liquidity providers within a trading system whose quoted prices or executed trades serve as benchmarks or inputs for pricing models, especially in opaque or fragmented markets like those for certain crypto assets or institutional options. </a><a href="https://prime.greeks.live/question/how-do-courts-interpret-commercially-reasonable-procedures-in-close-out-amount-calculations/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Commercially Reasonable Result

Courts interpret "commercially reasonable procedures" as an objective, evidence-based standard for valuing derivative close-outs. </a><a href="https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Commercially Reasonable

Meaning ▴ "Commercially Reasonable" is a legal and business standard requiring parties to a contract to act in a practical, prudent, and sensible manner, consistent with prevailing industry practices and good faith. </a><a href="https://prime.greeks.live/area/determining-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Polished opaque and translucent spheres intersect sharp metallic structures. This abstract composition represents advanced RFQ protocols for institutional digital asset derivatives, illustrating multi-leg spread execution, latent liquidity aggregation, and high-fidelity execution within principal-driven trading environments](https://options.greeks.live/wp-content/uploads/2025/07/digital-asset-derivatives-rfq-protocol-optimal-execution-orchestration.jpg)

## Determining Party

Meaning ▴ In the precise terminology of complex crypto financial instruments, particularly institutional options or structured products, the Determining Party is the pre-designated entity, whether an on-chain oracle or an agreed-upon off-chain agent, explicitly responsible for definitively calculating and announcing specific parameters, values, or conditions that critically influence the payoff, settlement, or lifecycle events of a contractual agreement. </a><a href="https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A robust, dark metallic platform, indicative of an institutional-grade execution management system. Its precise, machined components suggest high-fidelity execution for digital asset derivatives via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-high-fidelity-price-discovery-and-atomic-settlement-infrastructure.jpg)

## Market Data

Meaning ▴ Market data in crypto investing refers to the real-time or historical information regarding prices, volumes, order book depth, and other relevant metrics across various digital asset trading venues. </a><a href="https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark, circular metallic platform features a central, polished spherical hub, bisected by a taut green band. This embodies a robust Prime RFQ for institutional digital asset derivatives, enabling high-fidelity execution via RFQ protocols, optimizing market microstructure for best execution, and mitigating counterparty risk through atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-optimizing-high-fidelity-execution-across-diverse-market-microstructures.jpg)

## Close-Out Amount

Meaning ▴ The Close-Out Amount represents the aggregated net sum due between two parties upon the early termination or default of a master agreement, encompassing all outstanding obligations across multiple transactions. </a><a href="https://prime.greeks.live/area/non-defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precise lens-like module, symbolizing high-fidelity execution and market microstructure insight, rests on a sharp blade, representing optimal smart order routing. Curved surfaces depict distinct liquidity pools within an institutional-grade Prime RFQ, enabling efficient RFQ for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-execution-via-rfq-protocols.jpg)

## Non-Defaulting Party

Meaning ▴ A Non-Defaulting Party refers to the participant in a financial contract, such as a derivatives agreement or lending facility within the crypto ecosystem, that has fully adhered to its obligations while the other party has failed to do so. </a><a href="https://prime.greeks.live/area/swaps-and-derivatives/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision-engineered metallic component with a central circular mechanism, secured by fasteners, embodies a Prime RFQ engine. It drives institutional liquidity and high-fidelity execution for digital asset derivatives, facilitating atomic settlement of block trades and private quotation within market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-platform-rfq-engine-for-high-fidelity-execution-and-atomic-settlement-of-block-trades.jpg)

## Swaps and Derivatives

Meaning ▴ Swaps and derivatives, within the sophisticated crypto financial landscape, are contractual instruments whose value is derived from the price performance of an underlying cryptocurrency asset, index, or rate. </a><a href="https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek, intersecting metallic elements above illuminated tracks frame a central oval block. This visualizes institutional digital asset derivatives trading, depicting RFQ protocols for high-fidelity execution, liquidity aggregation, and price discovery within market microstructure, ensuring best execution on a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-system-for-optimal-execution.jpg)

## Market Quotation

Meaning ▴ A market quotation, or simply a quote, represents the most recent price at which an asset has traded or, more commonly in active markets, the current best bid and ask prices at which it can be immediately bought or sold. </a><a href="https://prime.greeks.live/area/internal-model/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract interconnected modules with glowing turquoise cores represent an Institutional Grade RFQ system for Digital Asset Derivatives. Each module signifies a Liquidity Pool or Price Discovery node, facilitating High-Fidelity Execution and Atomic Settlement within a Prime RFQ Intelligence Layer, optimizing Capital Efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-market-microstructure.jpg)

## Internal Model

Meaning ▴ An Internal Model defines a proprietary quantitative framework developed and utilized by financial institutions, including those active in crypto investing, to assess and manage various forms of risk, such as market, credit, and operational risk. </a><a href="https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Two high-gloss, white cylindrical execution channels with dark, circular apertures and secure bolted flanges, representing robust institutional-grade infrastructure for digital asset derivatives. These conduits facilitate precise RFQ protocols, ensuring optimal liquidity aggregation and high-fidelity execution within a proprietary Prime RFQ environment](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-execution-channels-enabling-private-quotation-and-optimal-liquidity-aggregation-for-high-fidelity-digital-asset-derivatives-rfq-protocols-on-prime-os.jpg)

## Isda Master Agreement

Meaning ▴ The ISDA Master Agreement, while originating in traditional finance, serves as a crucial foundational legal framework for institutional participants engaging in over-the-counter (OTC) crypto derivatives trading and complex RFQ crypto transactions. </a><a href="https://prime.greeks.live/area/risk-management/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract institutional-grade Crypto Derivatives OS. Metallic trusses depict market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-market-microstructure-optimizing-rfq-protocols-for-high-fidelity-execution-via-prime-os.jpg)

## Risk Management

Meaning ▴ Risk Management, within the cryptocurrency trading domain, encompasses the comprehensive process of identifying, assessing, monitoring, and mitigating the multifaceted financial, operational, and technological exposures inherent in digital asset markets. </a><a href="https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A translucent sphere with intricate metallic rings, an 'intelligence layer' core, is bisected by a sleek, reflective blade. This visual embodies an 'institutional grade' 'Prime RFQ' enabling 'high-fidelity execution' of 'digital asset derivatives' via 'private quotation' and 'RFQ protocols', optimizing 'capital efficiency' and 'market microstructure' for 'block trade' operations](https://options.greeks.live/wp-content/uploads/2025/07/precision-rfq-engine-for-digital-asset-derivatives-best-execution.jpg)

## Early Termination Date

Meaning ▴ An Early Termination Date refers to a specific, contractually defined point in time, prior to a financial instrument's scheduled maturity, at which the agreement can be concluded. </a><a href="https://prime.greeks.live/question/how-do-courts-interpret-commercially-reasonable-procedures-in-close-out-amount-calculations/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract depiction of an institutional digital asset derivatives execution system. A central market microstructure wheel supports a Prime RFQ framework, revealing an algorithmic trading engine for high-fidelity execution of multi-leg spreads and block trades via advanced RFQ protocols, optimizing capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-rfq-execution-system-1.jpg)

## Reasonable Result

Courts interpret "commercially reasonable procedures" as an objective, evidence-based standard for valuing derivative close-outs. </a><a href="https://prime.greeks.live/area/firm-quote/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek, modular system component in beige and dark blue, featuring precise ports and a vibrant teal indicator. This embodies Prime RFQ architecture enabling high-fidelity execution of digital asset derivatives through bilateral RFQ protocols, ensuring low-latency interconnects, private quotation, institutional-grade liquidity, and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-system-interface-for-digital-asset-derivatives-execution.jpg)

## Firm Quote

Meaning ▴ A Firm Quote is a binding price at which a market maker or liquidity provider guarantees to buy or sell a specified quantity of a financial instrument, including cryptocurrencies or their derivatives, for a defined period. </a><a href="https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract geometric forms in dark blue, beige, and teal converge around a metallic gear, symbolizing a Prime RFQ for institutional digital asset derivatives. A sleek bar extends, representing high-fidelity execution and precise delta hedging within a multi-leg spread framework, optimizing capital efficiency via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-derivatives-rfq-execution-engine-architecture.jpg)

## 2002 Isda

Meaning ▴ The 2002 ISDA, or the 2002 ISDA Master Agreement, represents the prevailing global standard contractual framework developed by the International Swaps and Derivatives Association for documenting over-the-counter (OTC) derivatives transactions between two parties. </a><a href="https://prime.greeks.live/area/early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Translucent geometric planes, speckled with micro-droplets, converge at a central nexus, emitting precise illuminated lines. This embodies Institutional Digital Asset Derivatives Market Microstructure, detailing RFQ protocol efficiency, High-Fidelity Execution pathways, and granular Atomic Settlement within a transparent Liquidity Pool](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-protocol-market-microstructure.jpg)

## Early Termination

Meaning ▴ Early Termination, within the framework of crypto financial instruments, denotes the contractual right or obligation to conclude a derivative or lending agreement prior to its originally stipulated maturity date. </a><a href="https://prime.greeks.live/area/funding-valuation-adjustment/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated institutional-grade device featuring a luminous blue core, symbolizing advanced price discovery mechanisms and high-fidelity execution for digital asset derivatives. This intelligence layer supports private quotation via RFQ protocols, enabling aggregated inquiry and atomic settlement within a Prime RFQ framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-core-intelligence.jpg)

## Funding Valuation Adjustment

Meaning ▴ Funding Valuation Adjustment (FVA) is a component of derivative pricing that accounts for the funding costs or benefits associated with uncollateralized or partially collateralized derivative transactions. </a><a href="https://prime.greeks.live/area/credit-valuation-adjustment/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A transparent, precisely engineered optical array rests upon a reflective dark surface, symbolizing high-fidelity execution within a Prime RFQ. Beige conduits represent latency-optimized data pipelines facilitating RFQ protocols for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-system-architecture.jpg)

## Credit Valuation Adjustment

Meaning ▴ Credit Valuation Adjustment (CVA), in the context of crypto, represents the market value adjustment to the fair value of a derivatives contract, quantifying the expected loss due to the counterparty's potential default over the life of the transaction. </a>

**Tags:** [Market Quotation](https://options.greeks.live/area/market-quotation/), [Commercially Reasonable](https://options.greeks.live/area/commercially-reasonable/), [Early Termination](https://options.greeks.live/area/early-termination/), [Close-Out Amount](https://options.greeks.live/area/close-out-amount/), [Credit Valuation Adjustment](https://options.greeks.live/area/credit-valuation-adjustment/), [Internal Model](https://options.greeks.live/area/internal-model/)	

## Discover More

- 
### [How Does the Close out Amount Calculation Differ from Market Quotation and Loss?](https://options.greeks.live/question/how-does-the-close-out-amount-calculation-differ-from-market-quotation-and-loss/)
![Abstract layers in grey, mint green, and deep blue visualize a Principal's operational framework for institutional digital asset derivatives. The textured grey signifies market microstructure, while the mint green layer with precise slots represents RFQ protocol parameters, enabling high-fidelity execution, private quotation, capital efficiency, and atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-layered-rfq-protocol-for-digital-asset-execution-system.jpg)

The Close-Out Amount calculation is a flexible, principles-based valuation system superseding the rigid Market Quotation and subjective Loss methods.

- 
### [What Constitutes a Commercially Reasonable Procedure in a Close-Out Scenario?](https://options.greeks.live/question/what-constitutes-a-commercially-reasonable-procedure-in-a-close-out-scenario/)
![Glowing teal conduit symbolizes high-fidelity execution pathways and real-time market microstructure data flow for digital asset derivatives. Smooth grey spheres represent aggregated liquidity pools and robust counterparty risk management within a Prime RFQ, enabling optimal price discovery.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-market-microstructure-prime-os.jpg)

A commercially reasonable procedure is a defensible, objective process for valuing terminated derivatives to ensure a fair and equitable settlement.

- 
### [How Does the 2002 ISDA Master Agreement Differ from the 1992 Version?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-differ-from-the-1992-version/)
![A reflective, metallic platter with a central spindle and an integrated circuit board edge against a dark backdrop. This imagery evokes the core low-latency infrastructure for institutional digital asset derivatives, illustrating high-fidelity execution and market microstructure dynamics. It signifies the robust Prime RFQ underpinning RFQ protocols for atomic settlement and best execution.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-execution-infrastructure-precision.jpg)

The 2002 ISDA Agreement enhances risk management architecture with a flexible close-out calculation and broader termination event protocols.

- 
### [How Does the 2002 ISDA Master Agreement Change the Standard for Calculating Close-Out Amounts?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-change-the-standard-for-calculating-close-out-amounts/)
![Detailed metallic disc, a Prime RFQ core, displays etched market microstructure. Its central teal dome, an intelligence layer, facilitates price discovery. Protruding rods signify low-latency RFQ protocol data transmission, ensuring high-fidelity execution for digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/principal-operating-system-intelligence-layer-powering-digital-asset-derivatives-rfq-protocols-for-optimal-execution.jpg)

The 2002 ISDA Agreement mandates an objectively reasonable process for calculating close-out amounts, enhancing valuation certainty.

- 
### [What Are the Key Differences between the 1992 and 2002 Isda Master Agreements regarding Close-Out Valuation?](https://options.greeks.live/question/what-are-the-key-differences-between-the-1992-and-2002-isda-master-agreements-regarding-close-out-valuation/)
![Polished metallic disks, resembling data platters, with a precise mechanical arm poised for high-fidelity execution. This embodies an institutional digital asset derivatives platform, optimizing RFQ protocol for efficient price discovery, managing market microstructure, and leveraging a Prime RFQ intelligence layer to minimize execution latency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-precision-execution-via-advanced-rfq-protocols-and-prime-os-intelligence-layer-for-optimal-market-microstructure.jpg)

The 2002 ISDA Agreement mandates an objective, two-way close-out valuation, replacing the 1992's subjective and potentially one-way system.

- 
### [How Does the 2002 ISDA Close out Amount Differ from the 1992 Loss Calculation?](https://options.greeks.live/question/how-does-the-2002-isda-close-out-amount-differ-from-the-1992-loss-calculation-2/)
![A translucent institutional-grade platform reveals its RFQ execution engine with radiating intelligence layer pathways. Central price discovery mechanisms and liquidity pool access points are flanked by pre-trade analytics modules for digital asset derivatives and multi-leg spreads, ensuring high-fidelity execution.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-core-platform.jpg)

The 2002 ISDA Close-Out Amount mandates an objective valuation, while the 1992 Loss allows a subjective indemnity calculation.

- 
### [What Are the Primary Grounds for Disputing a Close out Amount Calculated by an Internal Model?](https://options.greeks.live/question/what-are-the-primary-grounds-for-disputing-a-close-out-amount-calculated-by-an-internal-model/)
![A sophisticated institutional-grade system's internal mechanics. A central metallic wheel, symbolizing an algorithmic trading engine, sits above glossy surfaces with luminous data pathways and execution triggers. This abstract visualizes high-fidelity execution for digital asset derivatives, optimizing market microstructure and RFQ protocol efficiency within a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-core.jpg)

Grounds for disputing a close-out amount center on failures of the calculation to be commercially reasonable in procedure and result.

- 
### [How Does Market Volatility Affect the Determination of a Commercially Reasonable Close-Out Amount?](https://options.greeks.live/question/how-does-market-volatility-affect-the-determination-of-a-commercially-reasonable-close-out-amount/)
![Intersecting abstract geometric planes depict institutional grade RFQ protocols and market microstructure. Speckled surfaces reflect complex order book dynamics and implied volatility, while smooth planes represent high-fidelity execution channels and private quotation systems for digital asset derivatives within a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-rfq-protocols-digital-asset-microstructure-execution.jpg)

Market volatility stress-tests the objective reasonableness of a close-out by degrading the quality of valuation data.

- 
### [What Constitutes a Commercially Reasonable Valuation under the 2002 ISDA Master Agreement?](https://options.greeks.live/question/what-constitutes-a-commercially-reasonable-valuation-under-the-2002-isda-master-agreement/)
![A dark, circular metallic platform features a central, polished spherical hub, bisected by a taut green band. This embodies a robust Prime RFQ for institutional digital asset derivatives, enabling high-fidelity execution via RFQ protocols, optimizing market microstructure for best execution, and mitigating counterparty risk through atomic settlement.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-optimizing-high-fidelity-execution-across-diverse-market-microstructures.jpg)

A valuation under the 2002 ISDA Master Agreement must be an objectively defensible calculation of replacement cost.

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---

**Original URL:** https://options.greeks.live/question/how-does-the-close-out-amount-in-the-2002-isda-differ-from-market-quotation/
