# What Are the Key Differences between the 1992 and 2002 ISDA Close out Calculation Methods? ▴ Question

**Published:** 2025-08-04
**Categories:** Question

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## Concept

The transition from the 1992 International Swaps and Derivatives Association (ISDA) [Master Agreement](https://prime.greeks.live/area/master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to its 2002 counterpart represents a critical evolution in the architecture of over-the-counter (OTC) derivatives markets. This was a response to a series of market crises in the late 1990s and early 2000s that exposed certain structural weaknesses in the original framework. The core of this evolution lies in the [close-out calculation](https://prime.greeks.live/area/close-out-calculation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) methodology, the mechanism that determines the financial settlement when a derivatives contract is terminated prematurely due to a default or other specified termination event. Understanding the shift from the 1992 methodologies to the 2002 “Close-out Amount” is to understand a fundamental change in the philosophy of risk allocation and counterparty fairness at the heart of the global financial system.

At its center, the 1992 Agreement presented a choice between two primary valuation methods upon an early termination ▴ “Market Quotation” and “Loss.” It also offered a choice between two payment approaches, the “First Method” and the “Second Method.” The First Method, a one-way payment system, permitted the [non-defaulting party](https://prime.greeks.live/area/non-defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to calculate its net gains and demand payment, but if it owed money to the defaulting party, it was not required to pay. This punitive approach was quickly identified as a source of systemic instability, as it could create severe and unpredictable losses for a defaulting entity and its other creditors. The Second Method provided for a two-way payment, a system that has become the universal standard. 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) eliminated the First Method entirely, cementing the two-way payment principle as an industry bedrock.

> The 2002 ISDA Agreement replaced the bifurcated ‘Loss’ and ‘Market Quotation’ standards with a single, more objective ‘Close-out Amount’ calculation.

The 1992 Agreement’s valuation choices, [Market Quotation](https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and Loss, each presented distinct operational challenges. Market Quotation was designed to be an objective measure, derived by obtaining quotes from leading dealers for replacement transactions. In practice, during times of market stress ▴ precisely when close-outs are most likely ▴ dealers were often unwilling or unable to provide such quotes, rendering the mechanism unreliable. The alternative, Loss, was a more subjective measure.

It allowed the non-[defaulting party](https://prime.greeks.live/area/defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to determine in good faith its total losses and costs resulting from the termination. While flexible, this subjectivity could lead to disputes, as the defaulting party might perceive the calculation as self-serving. The 2002 Agreement sought to rectify these issues by introducing a single, unified concept ▴ the “[Close-out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” This new standard was engineered to be a fairer, more objective, and more robust mechanism, reflecting a market-wide consensus on the need for greater transparency and predictability in the event of a counterparty default.

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## What Was the Core Philosophical Shift?

The fundamental philosophical divergence between the 1992 and 2002 ISDA close-out methodologies is the movement away from a system that could be perceived as punitive towards the defaulting party to one that is focused on a [commercially reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and objective [replacement cost](https://prime.greeks.live/area/replacement-cost/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The 1992 Agreement, particularly with the availability of the First Method (limited walkaway) and the subjective nature of the “Loss” calculation, contained elements that could be used to penalize a defaulter. The framework gave considerable discretion to the non-defaulting party, operating under a standard of rationality. This meant its calculation would be upheld as long as it was not a determination that no reasonable non-defaulting party could have reached.

The 2002 Agreement re-architected this dynamic. By introducing the unified “Close-out Amount,” the new standard mandates that the determining party must use “[commercially reasonable procedures](https://prime.greeks.live/area/commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) in order to produce a [commercially reasonable result](https://prime.greeks.live/question/what-constitutes-a-commercially-unreasonable-result-in-a-derivatives-close-out-scenario/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” This is a higher and more rigorous standard. It shifts the focus from the subjective perspective of the non-defaulting party to an objective, verifiable process. The calculation is no longer about what one party reasonably believes its loss to be; it is about what a neutral observer would consider a fair market replacement cost, determined through a commercially sound process.

This change reflects a mature understanding of [systemic risk](https://prime.greeks.live/area/systemic-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). An overly punitive close-out can exacerbate financial distress, sending destabilizing ripples through the interconnected web of financial counterparties. The 2002 framework, in contrast, is designed to be a circuit breaker that is fair, predictable, and less likely to amplify a crisis.

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## An Evolution Driven by Market Events

The theoretical distinctions between the two agreements were cast into sharp relief by real-world events. The market turmoil of the late 1990s, including the Asian financial crisis and the collapse of Long-Term Capital Management (LTCM), followed by the corporate defaults of the early 2000s like Enron and WorldCom, provided a live-fire stress test for 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). These events highlighted the practical difficulties of the Market Quotation method in illiquid or volatile markets and the potential for disputes inherent in the [Loss method](https://prime.greeks.live/area/loss-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

The industry’s collective experience during these crises directly informed the drafting of the 2002 Agreement. There was a clear demand for a more resilient and equitable close-out mechanism. The resulting “Close-out Amount” was a direct answer to these challenges.

It was designed to function effectively even in stressed market conditions and to reduce the scope for disagreement by grounding the calculation in objective commercial practice. The inclusion of new provisions, such as a force majeure termination event, further demonstrated an attempt to create a more comprehensive and robust contractual architecture capable of withstanding a wider range of market shocks.

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## Strategy

The strategic decision of whether to use the 1992 or 2002 [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), particularly in the context of its close-out provisions, hinges on a party’s risk appetite, its negotiating leverage, and its desired balance between discretion and objectivity. The two agreements present fundamentally different strategic frameworks for managing counterparty default. The 1992 Agreement offers greater flexibility and discretion to the non-defaulting party, while the 2002 Agreement provides a more structured, objective, and arguably fairer process for both parties.

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## Comparing the Calculation Mechanisms

The strategic implications of the two agreements are best understood by a direct comparison of their respective close-out calculation methodologies. The [1992 ISDA](https://prime.greeks.live/area/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) forces a choice at the outset between two distinct paths, Loss and Market Quotation, each with its own strategic considerations. The [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) consolidates these into a single, hybrid approach.

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## The 1992 ISDA Framework a Choice of Discretion or Market-Reliance

Under the 1992 Agreement, parties specify in the Schedule to the Agreement which valuation method will apply. This choice is a critical point of negotiation.

- **Market Quotation** ▴ This method requires the non-defaulting party to obtain quotations from at least three leading dealers in the relevant market (Reference Market-makers) for a replacement transaction. The Settlement Amount is then determined based on the average of these quotes. The strategy here is to rely on the external market for an objective valuation. This can be advantageous for a party that wants to avoid any accusation of a self-serving calculation. However, its primary weakness is its unreliability in [stressed markets](https://prime.greeks.live/area/stressed-markets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). If quotes cannot be obtained, the agreement falls back to the Loss method, negating the original strategic choice.

- **Loss** ▴ This method grants the non-defaulting party the authority to calculate its total losses and costs arising from the termination. This calculation must be made in “[good faith](https://prime.greeks.live/area/good-faith/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” and be “reasonable.” Strategically, this provides maximum flexibility. The non-defaulting party can include a wide range of costs, including the cost of unwinding hedges and internal administrative expenses. The legal standard it must meet is one of rationality ▴ its calculation will stand unless it is one that no reasonable party in its position could have reached. This gives the non-defaulting party significant strategic latitude.

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## The 2002 ISDA Framework a Mandate for Objectivity

The 2002 Agreement dispenses with the binary choice and introduces the “Close-out Amount.” This is a more prescriptive and holistic methodology.

- **Close-out Amount** ▴ The [Determining Party](https://prime.greeks.live/area/determining-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (typically the non-defaulting party) calculates the “gains, losses and costs” related to the termination. This includes the economic equivalent of replacing the terminated transaction. The key strategic shift is the standard of conduct ▴ the Determining Party must “act in good faith and use commercially [reasonable procedures](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) in order to produce a commercially reasonable result.” This imposes a dual obligation ▴ the process must be sound, and the outcome must be fair from an objective standpoint. Strategically, this reduces the discretion of the Determining Party. It cannot simply rely on its own internal models without reference to external data if such data is available. It must be prepared to defend both its methodology and the final figure as being objectively commercially reasonable.

> The shift to the 2002 ISDA’s ‘Close-out Amount’ reflects an industry-wide strategic move towards greater transparency and predictability in derivatives termination.

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## Key Strategic Differences in a Table

The following table outlines the core strategic differences between the two frameworks:

| Feature | 1992 ISDA Master Agreement | 2002 ISDA Master Agreement |
| --- | --- | --- |
| Valuation Methodologies | Choice between “Loss” (subjective calculation by non-defaulting party) and “Market Quotation” (objective, based on dealer quotes). | A single, unified “Close-out Amount” calculation. |
| Standard of Calculation | For Loss ▴ “reasonably determines in good faith.” Interpreted by courts as a test of rationality (the “Wednesbury” test). | “act in good faith and use commercially reasonable procedures in order to produce a commercially reasonable result.” An objective standard. |
| Payment Method | Choice between “First Method” (one-way, walkaway payment) and “Second Method” (two-way payment). First Method is now obsolete in practice. | Only two-way payments are permitted. |
| Discretion of Non-Defaulting Party | High, especially under the Loss method. The calculation is primarily from the perspective of the non-defaulting party. | Lower. The calculation must be justifiable to an objective third party. The process and the result are both subject to a “commercially reasonable” test. |
| Reliability in Stressed Markets | Market Quotation is notoriously unreliable in volatile or illiquid markets, often forcing a fallback to the Loss method. | Designed to be more robust. The framework allows for a wider range of information to be used (quotes, market data, internal models) as long as the procedures are commercially reasonable. |

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## How Does the Payment Directionality Change Strategy?

The elimination of the “[First Method](https://prime.greeks.live/area/first-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” in the 2002 ISDA was a monumental strategic change. Under the 1992 Agreement, a party could elect for the First Method, which meant that if a counterparty defaulted, the non-defaulting party could terminate all transactions and demand payment for any amount it was owed on a net basis. If, however, the net position meant the non-defaulting party owed money to the defaulter, it could “walk away” and pay nothing.

This created a perverse incentive system. A firm in financial distress might be pushed into default by a counterparty who was “in the money” on their trades and saw an opportunity to realize a gain while avoiding a corresponding loss. This approach was widely criticized for being inequitable and for increasing systemic risk by placing undue pressure on entities in temporary distress.

The universal adoption of the “[Second Method](https://prime.greeks.live/area/second-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” ([two-way payments](https://prime.greeks.live/area/two-way-payments/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)) in the 2002 Agreement represents a strategic consensus that the purpose of a close-out is to make the non-defaulting party economically whole, not to provide a windfall gain at the expense of a defaulting party and its other creditors. This fosters a more stable and predictable market environment.

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## Execution

The execution of a close-out under an ISDA Master Agreement is a precise, high-stakes process. The operational differences between the 1992 and 2002 versions are not merely academic; they dictate the specific steps a non-defaulting party must take, the evidence it must gather, and the legal standard its actions will be judged against. A failure to execute the process correctly can lead to protracted legal disputes and potentially jeopardize the recovery of funds.

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## A Procedural Playbook for Close-Out

Executing a close-out requires a disciplined, step-by-step approach. The following outlines the operational sequence, highlighting the critical execution differences between the two agreements.

- **Triggering The [Early Termination](https://prime.greeks.live/area/early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ An [Early Termination Date](https://prime.greeks.live/area/early-termination-date/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) must be designated. This occurs upon the occurrence of an Event of Default (e.g. bankruptcy, failure to pay) or a Termination Event (e.g. illegality, tax event). The non-defaulting party must send a notice to the defaulting party specifying the event and designating the Early Termination Date. This process is broadly similar for both agreements.

- **Identifying The Terminated Transactions** ▴ All transactions governed by the Master Agreement are terminated as of the Early Termination Date. The Determining Party must compile a complete and accurate list of all such transactions.

- **The Valuation Process The Core Divergence** ▴ This is where the execution paths of the 1992 and 2002 agreements diverge most significantly.

<li>**1992 ISDA Execution (Market Quotation)** ▴ If Market Quotation is the chosen method, the non-defaulting party’s primary task is to contact Reference Market-makers (typically four are specified in the schedule) to request quotes for the cost of entering into a replacement transaction for the entire portfolio of terminated trades. The execution requires meticulous record-keeping of who was contacted, when they were contacted, and the precise quotes received. If fewer than three quotes are obtained, the method fails, and the party must revert to the Loss method.

- **1992 ISDA Execution (Loss)** ▴ If Loss is the method, the non-defaulting party’s execution focus shifts inward. It must calculate, in good faith, all of its losses and costs. This requires compiling evidence of these losses. This can include screenshots of market data at the time of termination, calculations from internal pricing models, and documented costs of unwinding any related hedges. The key is to build a defensible record that supports the “reasonableness” of the determination from its own perspective.

- **2002 ISDA Execution (Close-out Amount)** ▴ The execution under the 2002 Agreement is a hybrid and more demanding process. The Determining Party must use “commercially reasonable procedures.” Operationally, this means it cannot simply rely on one source of information. It should gather a range of data, which could include:

<li>Quotations from dealers (even if informal).

- Data from electronic trading platforms.

- Information from third-party valuation services.

- Output from its own internal pricing models, provided those models are recognized industry standards.

The execution here is about creating a robust, auditable trail that demonstrates a comprehensive and fair attempt to ascertain the market value. The party must be prepared to justify why its chosen procedures were commercially reasonable and why they led to a commercially [reasonable result](https://prime.greeks.live/question/can-an-arrival-price-strategy-still-result-in-a-high-implementation-shortfall-and-why/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This is a higher evidentiary burden than under the 1992 Loss method.</li>

</li>
- **Calculating The Final Settlement Amount** ▴ After the valuation is complete, the gains and losses across all terminated transactions are netted out. Any unpaid amounts that were due prior to the termination are factored in.
The result is a single net figure payable by one party to the other.

- **Delivering The Calculation Statement** ▴ The non-defaulting party must deliver a statement to the defaulting party showing how the final amount was calculated in reasonable detail. The level of detail required to satisfy this obligation is often a point of contention.

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## Illustrative Calculation Scenario

To demonstrate the potential for different outcomes, consider a hypothetical scenario where a bank (Non-defaulting Party) closes out a portfolio of interest rate swaps with a defaulted hedge fund (Defaulting Party). The portfolio is, on a net basis, “in the money” to the bank.

| Valuation Approach | Execution Steps | Potential Outcome & Risk |
| --- | --- | --- |
| 1992 ISDA (Loss Method) | The bank’s trading desk runs its internal models at the time of termination. It adds an internal charge for the traders’ time and the estimated cost of unwinding a portfolio of treasury bond hedges that were associated with the swap portfolio. The total calculated loss is $10.5 million. | The bank claims $10.5 million. The hedge fund’s liquidator may challenge this, arguing the internal charges are not a direct “loss” and the hedge unwind calculation was overly conservative. The bank’s position is defensible as long as its actions were rational from its perspective. |
| 1992 ISDA (Market Quotation) | The bank contacts four leading swap dealers. Due to market volatility, only two provide firm quotes. One quotes a replacement cost of $9.8 million, the other $10.4 million. The third dealer provides an indicative quote of “around $10 million” but will not stand by it. The fourth refuses to quote. | The method fails because fewer than three firm quotes were received. The bank is forced to revert to the Loss method, leading to the same situation as above. This demonstrates the execution fragility of Market Quotation. |
| 2002 ISDA (Close-out Amount) | The bank’s trading desk gathers information from multiple sources. It gets two dealer quotes ($9.9 million and $10.3 million). It also obtains the mid-market mark from a major trading platform ($10.1 million). Its own internal model shows a value of $10.2 million. It disregards its internal charge for traders’ time as not being a direct, commercially reasonable replacement cost. It determines the Close-out Amount to be $10.15 million, the average of the external data points. | The bank claims $10.15 million. This figure is highly defensible. The bank can present a clear, documented record of using multiple, objective, external data points. It has followed commercially reasonable procedures to arrive at a result that is verifiably fair, making a legal challenge by the liquidator much more difficult. |

> Executing a close-out under the 2002 ISDA requires building a robust, auditable record of commercially reasonable procedures and outcomes.

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## What Is the Role of Good Faith and Commercial Reasonableness?

The concepts of “good faith” and “[commercial reasonableness](https://prime.greeks.live/area/commercial-reasonableness/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” are central to the execution of a close-out. “Good faith” is a component of both agreements and generally requires that a party act honestly and not with an improper motive. The more significant evolution is the addition of “commercially reasonable procedures” and a “commercially reasonable result” in the 2002 ISDA.

This imposes a procedural and a substantive obligation. A party cannot use a flawed or biased process, even if it coincidentally produces a reasonable outcome. Conversely, a perfect, industry-standard process that produces a bizarre, out-of-market result would also fail the test.

In execution, this means the Determining Party under the 2002 Agreement must constantly self-audit its actions against objective market standards. It must ask not only “What is my loss?” but also “How would a reasonable market participant, acting fairly, calculate the replacement cost of these transactions?” This shift in perspective is the defining feature of executing a close-out under the modern ISDA framework.

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## References

- High Court clarifies calculation of Close-out amount under 2002 ISDA Master Agreement. (2018). This source details the legal interpretation of “commercially reasonable procedures” and the higher standard of objectivity required by the 2002 ISDA compared to the 1992 version’s rationality test.

- ISDA Master Agreement Close-out Provisions ▴ English Courts Highlight a Difference Between the 1992 and 2002 Versions. (2018). Faegre Drinker Biddle & Reath LLP. This publication analyzes the court’s view on the stricter test in the 2002 version and the two separate obligations (commercially reasonable procedures and result).

- Derivatives Laws and Regulations Close-out Under the 1992 and 2002 ISDA Master Agreements 2025. (2025). ICLG.com. This chapter provides a general overview of the close-out process under both agreements, covering aspects like the identity of the determining party and the treatment of expenses.

- Closing-out 1992 and 2002 ISDA® Master Agreements. Practical Law – Westlaw. This guide offers practical advice on the process of closing out transactions under both versions of the ISDA Master Agreement.

- ISDA Comparison. The Jolly Contrarian. (2020). This source provides a detailed comparison of the two agreements, highlighting the move to two-way payments, the replacement of Loss/Market Quotation with Close-Out Amount, and the rationale behind these changes, including the unreliability of Market Quotation in stressed markets.

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## Reflection

The evolution from the 1992 to the 2002 ISDA close-out methodology is more than a mere technical adjustment in legal drafting. It is a codification of lessons learned through market crises and a deliberate architectural choice to enhance the stability of the global financial system. The framework you operate within defines the tools available to you in a crisis.

Does your current [counterparty risk](https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) framework prioritize discretion or objectivity? Is it designed to function under the stress of volatile and illiquid markets, or does it rely on assumptions of normalcy?

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## How Does This Framework Integrate with Your Own?

The principles embedded in the 2002 ISDA ▴ objectivity, procedural soundness, and commercial reasonableness ▴ provide a robust template for risk management that extends far beyond derivatives. They prompt a critical examination of any internal process where subjective valuation occurs under pressure. The true strength of an operational framework is revealed not in calm markets, but at the point of failure. Viewing the ISDA close-out mechanism not as a static legal document but as a dynamic system for crisis resolution allows an institution to internalize these principles, building a more resilient and defensible operational architecture.

![A sophisticated metallic mechanism with integrated translucent teal pathways on a dark background. This abstract visualizes the intricate market microstructure of an institutional digital asset derivatives platform, specifically the RFQ engine facilitating private quotation and block trade execution](https://options.greeks.live/wp-content/uploads/2025/07/systemic-framework-for-institutional-digital-asset-derivatives-rfq-price-discovery-and-atomic-settlement.jpg)

## Glossary

<a href="https://prime.greeks.live/area/close-out-calculation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision algorithmic core with layered rings on a reflective surface signifies high-fidelity execution for institutional digital asset derivatives. It optimizes RFQ protocols for price discovery, channeling dark liquidity within a robust Prime RFQ for capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-optimized-for-precision.jpg)

## Close-Out Calculation

Meaning ▴ Close-Out Calculation refers to the process of determining the final financial value and obligations of outstanding positions or contracts when a trading relationship or specific agreements are terminated prematurely, often due to a default event or the exercise of a contractual right. </a><a href="https://prime.greeks.live/area/master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract image showing interlocking metallic and translucent blue components, suggestive of a sophisticated RFQ engine. This depicts the precision of an institutional-grade Crypto Derivatives OS, facilitating high-fidelity execution and optimal price discovery within complex market microstructure for multi-leg spreads and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-market-microstructure-for-institutional-digital-asset-derivatives-rfq.jpg)

## Master Agreement

Meaning ▴ A Master Agreement is a standardized, foundational legal contract that establishes the overarching terms and conditions governing all future transactions between two parties for specific financial instruments, such as derivatives or foreign exchange. </a><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">
![An Institutional Grade RFQ Engine core for Digital Asset Derivatives. This Prime RFQ Intelligence Layer ensures High-Fidelity Execution, driving Optimal Price Discovery and Atomic Settlement for Aggregated Inquiries](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-core-high-fidelity.jpg)

## 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/non-defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Brushed metallic and colored modular components represent an institutional-grade Prime RFQ facilitating RFQ protocols for digital asset derivatives. The precise engineering signifies high-fidelity execution, atomic settlement, and capital efficiency within a sophisticated market microstructure for multi-leg spread trading](https://options.greeks.live/wp-content/uploads/2025/08/institutional-grade-digital-asset-derivatives-rfq-protocol-high-fidelity-execution-system.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/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Polished concentric metallic and glass components represent an advanced Prime RFQ for institutional digital asset derivatives. It visualizes high-fidelity execution, price discovery, and order book dynamics within market microstructure, enabling efficient RFQ protocols for block trades](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-prime-os-precision.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/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intersecting digital architecture with glowing conduits symbolizes Principal's operational framework. An RFQ engine ensures high-fidelity execution of Institutional Digital Asset Derivatives, facilitating block trades, multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/principal-digital-asset-derivatives-rfq-engine-high-fidelity-execution.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/defaulting-party/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sleek, light interface, a Principal's Prime RFQ, overlays a dark, intricate market microstructure. This represents institutional-grade digital asset derivatives trading, showcasing high-fidelity execution via RFQ protocols](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-prime-os-execution-system.jpg)

## Defaulting Party

Meaning ▴ A Defaulting Party is an entity that fails to satisfy its contractual obligations under a financial agreement, such as a loan, a derivatives contract, or a margin requirement. </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">
![A sleek, pointed object, merging light and dark modular components, embodies advanced market microstructure for digital asset derivatives. Its precise form represents high-fidelity execution, price discovery via RFQ protocols, emphasizing capital efficiency, institutional grade alpha generation](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-rfq-execution-system-microstructure.jpg)

## 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/replacement-cost/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A metallic disc, reminiscent of a sophisticated market interface, features two precise pointers radiating from a glowing central hub. This visualizes RFQ protocols driving price discovery within institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-price-discovery.jpg)

## Replacement Cost

Meaning ▴ Replacement Cost, within the specialized financial architecture of crypto, denotes the total expenditure required to substitute an existing asset with a new asset of comparable utility, functionality, or equivalent current market value. </a><a href="https://prime.greeks.live/area/commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precision digital token, subtly green with a '0' marker, meticulously engages a sleek, white institutional-grade platform. This symbolizes secure RFQ protocol initiation for high-fidelity execution of complex multi-leg spread strategies, optimizing portfolio margin and capital efficiency within a Principal's Crypto Derivatives OS](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-platform-secure-rfq-protocol-initiation-for-optimal-block-trade-execution.jpg)

## Commercially Reasonable Procedures

Meaning ▴ Commercially Reasonable Procedures denote a standard of conduct or a set of actions that a prudent and competent entity would undertake in a specific business context, balancing cost, effectiveness, and prevailing industry practices. </a><a href="https://prime.greeks.live/question/what-constitutes-a-commercially-unreasonable-result-in-a-derivatives-close-out-scenario/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Abstract forms depict interconnected institutional liquidity pools and intricate market microstructure. Sharp algorithmic execution paths traverse smooth aggregated inquiry surfaces, symbolizing high-fidelity execution within a Principal's operational framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-microstructure-prime-os-1.jpg)

## Commercially Reasonable Result

A commercially unreasonable result in a derivatives close-out is a valuation that fails the test of objective market-based evidence. </a><a href="https://prime.greeks.live/area/systemic-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Visualizing a complex Institutional RFQ ecosystem, angular forms represent multi-leg spread execution pathways and dark liquidity integration. A sharp, precise point symbolizes high-fidelity execution for digital asset derivatives, highlighting atomic settlement within a Prime RFQ framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-1.jpg)

## Systemic Risk

Meaning ▴ Systemic Risk, within the evolving cryptocurrency ecosystem, signifies the inherent potential for the failure or distress of a single interconnected entity, protocol, or market infrastructure to trigger a cascading, widespread collapse across the entire digital asset market or a significant segment thereof. </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">
![Close-up reveals robust metallic components of an institutional-grade execution management system. Precision-engineered surfaces and central pivot signify high-fidelity execution for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-rfq-execution-precision-optimizing-market-microstructure-for-best-execution-and-prime-os.jpg)

## 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/loss-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A precise mechanical instrument with intersecting transparent and opaque hands, representing the intricate market microstructure of institutional digital asset derivatives. This visual metaphor highlights dynamic price discovery and bid-ask spread dynamics within RFQ protocols, emphasizing high-fidelity execution and latent liquidity through a robust Prime RFQ for atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineering-driving-institutional-digital-asset-derivatives-execution-across-advanced-rfq-protocols-and-prime-brokerage-frameworks.jpg)

## Loss Method

Meaning ▴ Loss Method, in the context of financial regulations and risk management, refers to a specific accounting or calculation approach used to determine the financial impact of a loss event, particularly in the realm of derivatives and trading operations. </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">
![A focused view of a robust, beige cylindrical component with a dark blue internal aperture, symbolizing a high-fidelity execution channel. This element represents the core of an RFQ protocol system, enabling bespoke liquidity for Bitcoin Options and Ethereum Futures, minimizing slippage and information leakage](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-rfq-engine-core-precision-component.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/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Precisely engineered metallic components, including a central pivot, symbolize the market microstructure of an institutional digital asset derivatives platform. This mechanism embodies RFQ protocols facilitating high-fidelity execution, atomic settlement, and optimal price discovery for crypto options](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-market-microstructure-1.jpg)

## 1992 Isda

Meaning ▴ The 1992 ISDA Master Agreement, a foundational contractual framework developed by the International Swaps and Derivatives Association, provides a standardized bilateral legal and operational structure for privately negotiated over-the-counter (OTC) derivatives transactions. </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">
![Geometric planes, light and dark, interlock around a central hexagonal core. This abstract visualization depicts an institutional-grade RFQ protocol engine, optimizing market microstructure for price discovery and high-fidelity execution of digital asset derivatives including Bitcoin options and multi-leg spreads within a Prime RFQ framework, ensuring atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-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/stressed-markets/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intersecting angular structures symbolize dynamic market microstructure, multi-leg spread strategies. Translucent spheres represent institutional liquidity blocks, digital asset derivatives, precisely balanced](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-4.jpg)

## Stressed Markets

Meaning ▴ Stressed markets refer to periods of severe disruption, heightened volatility, and significantly reduced liquidity within financial systems. </a><a href="https://prime.greeks.live/area/good-faith/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A high-precision, dark metallic circular mechanism, representing an institutional-grade RFQ engine. Illuminated segments denote dynamic price discovery and multi-leg spread execution](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-7.jpg)

## Good Faith

Meaning ▴ Good Faith, within the intricate and often trust-minimized architecture of crypto financial systems, denotes the principle of honest intent, fair dealing, and transparent conduct in all participant interactions and contractual agreements. </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">
![A central dark nexus with intersecting data conduits and swirling translucent elements depicts a sophisticated RFQ protocol's intelligence layer. This visualizes dynamic market microstructure, precise price discovery, and high-fidelity execution for institutional digital asset derivatives, optimizing capital efficiency and mitigating counterparty risk](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-engine-visualizing-high-fidelity-execution-and-market-microstructure-dynamics.jpg)

## Reasonable Procedures

Courts interpret "commercially reasonable procedures" as an objective, evidence-based standard for valuing derivative close-outs. </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">
![A sleek metallic device with a central translucent sphere and dual sharp probes. This symbolizes an institutional-grade intelligence layer, driving high-fidelity execution for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-platform-precision.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/first-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An exposed institutional digital asset derivatives engine reveals its market microstructure. The polished disc represents a liquidity pool for price discovery](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-digital-asset-derivatives-rfq-execution-system.jpg)

## First Method

Meaning ▴ The "First Method" refers to a specific approach within the context of trade allocation and execution in financial markets, where the earliest submitted orders from clients are prioritized for execution against available market liquidity. </a><a href="https://prime.greeks.live/area/two-way-payments/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated proprietary system module featuring precision-engineered components, symbolizing an institutional-grade Prime RFQ for digital asset derivatives. Its intricate design represents market microstructure analysis, RFQ protocol integration, and high-fidelity execution capabilities, optimizing liquidity aggregation and price discovery for block trades within a multi-leg spread environment](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-proprietary-architecture-driving-high-fidelity-digital-asset-derivatives-execution-via-rfq-protocols-and-optimized-market-microstructure-dynamics.jpg)

## Two-Way Payments

Meaning ▴ A payment system or transaction where funds can flow in both directions between two parties, allowing for both sending and receiving of value. </a><a href="https://prime.greeks.live/area/second-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A dark, precision-engineered module with raised circular elements integrates with a smooth beige housing. It signifies high-fidelity execution for institutional RFQ protocols, ensuring robust price discovery and capital efficiency in digital asset derivatives market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-system-core-high-speed-price-discovery-module.jpg)

## Second Method

Meaning ▴ The "Second Method" refers to an alternative or supplementary approach utilized for computation, valuation, or process execution, distinct from a primary method. </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 diagonal composition contrasts a blue intelligence layer, symbolizing market microstructure and volatility surface, with a metallic, precision-engineered execution engine. This depicts high-fidelity execution for institutional digital asset derivatives via RFQ protocols, ensuring atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-for-institutional-digital-asset-derivatives-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/area/early-termination/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A specialized hardware component, showcasing a robust metallic heat sink and intricate circuit board, symbolizes a Prime RFQ dedicated hardware module for institutional digital asset derivatives. It embodies market microstructure enabling high-fidelity execution via RFQ protocols for block trade and multi-leg spread](https://options.greeks.live/wp-content/uploads/2025/08/prime-os-dedicated-hardware-for-institutional-rfq-execution.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/question/can-an-arrival-price-strategy-still-result-in-a-high-implementation-shortfall-and-why/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Visualizes the core mechanism of an institutional-grade RFQ protocol engine, highlighting its market microstructure precision. Metallic components suggest high-fidelity execution for digital asset derivatives, enabling private quotation and block trade processing](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-core-1.jpg)

## Reasonable Result

An arrival price strategy yields high shortfall when market impact and timing risk are not systemically managed. </a><a href="https://prime.greeks.live/area/commercial-reasonableness/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated, multi-layered trading interface, embodying an Execution Management System EMS, showcases institutional-grade digital asset derivatives execution. Its sleek design implies high-fidelity execution and low-latency processing for RFQ protocols, enabling price discovery and managing multi-leg spreads with capital efficiency across diverse liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-trading-platform-market-microstructure.jpg)

## Commercial Reasonableness

Meaning ▴ Commercial Reasonableness, in the context of crypto institutional options trading and RFQ systems, signifies the objective standard by which the terms, conditions, and pricing of a transaction are evaluated for their alignment with prevailing market practices, economic rationality, and prudent business judgment among sophisticated participants. </a><a href="https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![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](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-execution-infrastructure-precision.jpg)

## Counterparty Risk

Meaning ▴ Counterparty risk, within the domain of crypto investing and institutional options trading, represents the potential for financial loss arising from a counterparty's failure to fulfill its contractual obligations. </a>

**Tags:** [Replacement Cost](https://options.greeks.live/area/replacement-cost/), [Two-Way Payment](https://options.greeks.live/area/two-way-payment/), [Good Faith](https://options.greeks.live/area/good-faith/), [Market Quotation](https://options.greeks.live/area/market-quotation/), [Early Termination Date](https://options.greeks.live/area/early-termination-date/), [Loss Method](https://options.greeks.live/area/loss-method/)	

## Discover More

- 
### [What Constitutes a Commercially Reasonable Procedure in a Derivatives Close-Out?](https://options.greeks.live/question/what-constitutes-a-commercially-reasonable-procedure-in-a-derivatives-close-out/)
![A teal sphere with gold bands, symbolizing a discrete digital asset derivative block trade, rests on a precision electronic trading platform. This illustrates granular market microstructure and high-fidelity execution within an RFQ protocol, driven by a Prime RFQ intelligence layer.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivative-rfq-protocol-high-fidelity-execution-platform-microstructure-intelligence-layer.jpg)

A commercially reasonable procedure is an objective, evidence-based protocol for valuing a terminated derivative to ensure a fair result.

- 
### [How Does the Close out Calculation Differ between the 1992 and 2002 Isda Agreements?](https://options.greeks.live/question/how-does-the-close-out-calculation-differ-between-the-1992-and-2002-isda-agreements/)
![A central, dynamic, multi-bladed mechanism visualizes Algorithmic Trading engines and Price Discovery for Digital Asset Derivatives. Flanked by sleek forms signifying Latent Liquidity and Capital Efficiency, it illustrates High-Fidelity Execution via RFQ Protocols within an Institutional Grade framework, minimizing Slippage.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-market-microstructure-rfq-protocol-optimization.jpg)

The 2002 ISDA Agreement replaces the rigid 1992 'Market Quotation/Loss' with a flexible 'Close-out Amount' based on commercial reasonableness.

- 
### [How Does the Close out Amount Calculation Promote Greater Objectivity than the Previous First Method?](https://options.greeks.live/question/how-does-the-close-out-amount-calculation-promote-greater-objectivity-than-the-previous-first-method/)
![Stacked precision-engineered circular components, varying in size and color, rest on a cylindrical base. This modular assembly symbolizes a robust Crypto Derivatives OS architecture, enabling high-fidelity execution for institutional RFQ protocols. It embodies layered liquidity aggregation, optimized price discovery within market microstructure, and capital efficiency for digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-rfq-protocol-architecture-optimized-for-high-fidelity-execution.jpg)

The Close-Out Amount mandates a valuation based on objective, market-driven replacement costs, ensuring a fair and defensible process.

- 
### [How Did the 2002 ISDA Close out Amount Calculation Differ from Prior Methods?](https://options.greeks.live/question/how-did-the-2002-isda-close-out-amount-calculation-differ-from-prior-methods/)
![Abstract geometric forms in muted beige, grey, and teal represent the intricate market microstructure of institutional digital asset derivatives. Sharp angles and depth symbolize high-fidelity execution and price discovery within RFQ protocols, highlighting capital efficiency and real-time risk management for multi-leg spreads on a Prime RFQ platform.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-optimized-rfq-execution-for-digital-asset-derivatives.jpg)

The 2002 ISDA Close-out Amount replaced rigid valuation mechanics with a flexible, commercially reasonable standard.

- 
### [How Can a Firm Prove Its Close-Out Calculation Was Commercially Reasonable in Court?](https://options.greeks.live/question/how-can-a-firm-prove-its-close-out-calculation-was-commercially-reasonable-in-court/)
![A metallic disc intersected by a dark bar, over a teal circuit board. This visualizes Institutional Liquidity Pool access via RFQ Protocol, enabling Block Trade Execution of Digital Asset Options with High-Fidelity Execution. It signifies Market Microstructure Optimization and Atomic Settlement on a Prime RFQ.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-principal-operational-framework-market-microstructure-high-fidelity-execution.jpg)

A firm proves its close-out calculation was commercially reasonable by systematically executing a pre-defined, evidence-based valuation protocol.

- 
### [How Does the Close out Amount Calculation in the 2002 Agreement Differ from the Loss Calculation in the 1992 Version?](https://options.greeks.live/question/how-does-the-close-out-amount-calculation-in-the-2002-agreement-differ-from-the-loss-calculation-in-the-1992-version/)
![A focused view of a robust, beige cylindrical component with a dark blue internal aperture, symbolizing a high-fidelity execution channel. This element represents the core of an RFQ protocol system, enabling bespoke liquidity for Bitcoin Options and Ethereum Futures, minimizing slippage and information leakage.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-grade-digital-asset-derivatives-rfq-engine-core-precision-component.jpg)

The 2002 Agreement's Close-Out Amount mandates an objective, commercially reasonable valuation, replacing the 1992's subjective Loss standard.

- 
### [How Does the 2002 ISDA Master Agreement Change Valuation Risk?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-change-valuation-risk/)
![A central control knob on a metallic platform, bisected by sharp reflective lines, embodies an institutional RFQ protocol. This depicts intricate market microstructure, enabling high-fidelity execution, precise price discovery for multi-leg options, and robust Prime RFQ deployment, optimizing latent liquidity across digital asset derivatives.](https://options.greeks.live/wp-content/uploads/2025/08/institutional-rfq-digital-asset-derivatives-execution-engine-core-microstructure.jpg)

The 2002 ISDA Agreement re-architects valuation risk by mandating an objective, evidence-based close-out process.

- 
### [What Constitutes a Commercially Reasonable Procedure for Calculating a Close-Out Amount?](https://options.greeks.live/question/what-constitutes-a-commercially-reasonable-procedure-for-calculating-a-close-out-amount/)
![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)

A commercially reasonable procedure is an objective, evidence-based method for valuing terminated derivatives to restore economic equivalence.

- 
### [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/)
![An institutional-grade platform's RFQ protocol interface, with a price discovery engine and precision guides, enables high-fidelity execution for digital asset derivatives. Integrated controls optimize market microstructure and liquidity aggregation within a Principal's operational framework.](https://options.greeks.live/wp-content/uploads/2025/07/proprietary-institutional-digital-asset-derivatives-rfq-protocol-engine-facilitating-high-fidelity-execution-and-granular-market-microstructure-analysis-for-prime-os.jpg)

The 2002 ISDA's Close-Out Amount mandates an objectively reasonable process, replacing the 1992's more subjective Loss standard.

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---

**Original URL:** https://options.greeks.live/question/what-are-the-key-differences-between-the-1992-and-2002-isda-close-out-calculation-methods/
