# What Are the Key Differences between the Market Quotation and Close-Out Amount Methodologies? ▴ Question

**Published:** 2025-08-12
**Categories:** Question

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## Concept

In the architecture of derivatives agreements, the mechanism for calculating termination payments following a default or other termination event represents a critical system component. This is the financial engineering that ensures one party is made whole when its counterparty fails to perform. The distinction between the [Market Quotation methodology](https://prime.greeks.live/question/how-does-the-close-out-amount-methodology-differ-from-market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), predominant under the 1992 ISDA Master Agreement, and the [Close-Out Amount methodology](https://prime.greeks.live/question/how-does-the-close-out-amount-methodology-differ-from-market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), the standard in the 2002 ISDA Master Agreement, is a fundamental shift in the philosophy of valuation at the point of market stress. It is an evolution from a rigidly defined, externally-focused process to a more flexible, internally-driven framework grounded in commercial reasonableness.

The [Market Quotation method](https://prime.greeks.live/question/what-are-the-operational-risks-associated-with-the-market-quotation-method-during-a-systemic-crisis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) is a prescriptive procedure. Its core logic centers on obtaining a series of price quotations for replacement transactions from a defined set of third-party dealers, known as [Reference Market-makers](https://prime.greeks.live/area/reference-market-makers/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The process is mechanical ▴ solicit quotes, apply a specific formula to them (like taking the average after discarding the highest and lowest), and arrive at a value.

This approach was designed to inject objectivity and verifiability into the valuation process, creating a clear, auditable trail. Its primary goal was to prevent a non-defaulting party from assigning an arbitrary or self-serving value to a terminated trade by forcing the valuation exercise out into the observable market.

> The core distinction lies in the source of the valuation ▴ Market Quotation relies on external, observable dealer quotes, whereas Close-Out Amount permits an internal, principle-based calculation of economic loss.

Conversely, the Close-Out Amount methodology embodies a different set of principles. Introduced with 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), it moves away from the procedural rigidity of its predecessor. This method empowers the [determining party](https://prime.greeks.live/question/can-a-determining-party-unilaterally-revise-a-close-out-calculation-after-it-has-been-issued/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) to calculate, in good faith, a single figure representing its total gains or losses resulting from the termination. This calculation is not bound to a specific process of polling dealers.

Instead, it must be performed using “[commercially reasonable procedures](https://prime.greeks.live/area/commercially-reasonable-procedures/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” to produce a “commercially reasonable result.” This provides the flexibility to use a wide array of information, including [internal pricing models](https://prime.greeks.live/question/what-are-the-primary-risks-associated-with-using-poorly-governed-internal-valuation-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), data from electronic trading platforms, and information from third-party valuation services, in addition to traditional dealer quotes. The design objective shifted from procedural purity to economic reality, acknowledging that for many complex or illiquid derivatives, a truly representative market quotation is often unattainable.

This evolution reflects a deeper understanding of market structure. The [Market Quotation](https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) framework presumed the existence of a liquid, observable market of dealers willing and able to price a replacement for any given transaction. The financial crises of the late 1990s and 2000s demonstrated the fragility of this assumption.

In times of systemic stress, liquidity evaporates, and dealers may be unwilling or unable to provide meaningful quotes. The [Close-Out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) was engineered for this reality, providing a robust fallback that relies on a party’s own resources and a broad spectrum of market information to ascertain the true economic equivalent of the [terminated transaction](https://prime.greeks.live/question/what-constitutes-a-commercially-reasonable-procedure-for-valuing-a-terminated-derivative/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

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## Strategy

The selection of a close-out [valuation methodology](https://prime.greeks.live/area/valuation-methodology/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) within a derivatives contract is a strategic decision that reflects a firm’s operational capabilities, risk appetite, and the nature of its trading activity. The choice between the prescriptive Market Quotation and the flexible Close-Out Amount has significant implications for managing [counterparty risk](https://prime.greeks.live/area/counterparty-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), particularly during periods of market dislocation. Understanding these strategic dimensions is essential for any institution navigating the complexities of bilateral derivatives agreements.

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## The Trade-Off between Objectivity and Feasibility

The primary strategic appeal of the Market Quotation methodology lies in its perceived objectivity. By relying on external quotes from pre-agreed Reference Market-makers, the process appears transparent and less susceptible to manipulation by the calculating party. This can be strategically advantageous when dealing with less sophisticated counterparties or in situations where demonstrating a fair, market-based valuation is paramount to avoid disputes.

However, this procedural purity comes at a strategic cost ▴ feasibility. In volatile or illiquid markets, or for highly bespoke transactions, obtaining the required number of quotes (typically three or four) can become operationally impossible. Dealers may refuse to quote, or the quotes received may be so wide as to be commercially meaningless.

In such a scenario, the [1992 ISDA](https://prime.greeks.live/area/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) agreement’s fallback to the “Loss” methodology ▴ a more subjective measure similar in spirit to the Close-Out Amount ▴ reveals the inherent fragility of the Market Quotation process. Therefore, a firm whose strategy involves trading in esoteric or less liquid instruments might find the Market Quotation method to be a significant operational and legal risk.

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## Valuation Philosophy and Risk Realism

The Close-Out Amount methodology represents a more modern and strategically robust valuation philosophy. Its core premise is the recognition that a single, perfect “market price” may not exist for many derivatives. Instead, it focuses on the actual, demonstrable economic impact on the non-defaulting party.

This is a crucial strategic shift. It allows a firm to use its own sophisticated internal [pricing models](https://prime.greeks.live/question/how-do-pricing-models-for-long-dated-crypto-options-differ-from-traditional-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) and all available market data to determine its true cost of replacing the economic equivalent of the terminated trade.

This approach has several strategic benefits:

- **Speed and Efficiency** ▴ The determining party can act swiftly without being constrained by the need to poll multiple external dealers, which is critical in a rapidly moving market.

- **Applicability to Complex Products** ▴ It is far better suited for complex, exotic, or illiquid derivatives where a standard market quote is unavailable.

- **Inclusion of All Costs** ▴ The definition allows for the inclusion of costs associated with unwinding hedges and other related expenses, providing a more holistic and economically accurate measure of loss.

> Choosing a methodology is a strategic declaration of how a firm views market reality ▴ as a place of observable, objective prices or as a complex system where economic value must be constructed from diverse data sources.

The table below outlines the key strategic differences between the two methodologies.

| Strategic Dimension | Market Quotation (1992 ISDA) | Close-Out Amount (2002 ISDA) |
| --- | --- | --- |
| Valuation Philosophy | Based on external, observable market prices from a panel of dealers. Aims for procedural objectivity. | Based on the economic loss or gain to the determining party. Aims for commercial reasonableness and economic reality. |
| Primary Strength | Perceived fairness and transparency; provides a clear, auditable process that is harder to dispute if executed correctly. | Flexibility and robustness; works well for all product types and in all market conditions, especially illiquid ones. |
| Primary Weakness | Brittle and often unworkable in stressed or illiquid markets. Can fail to produce a result, forcing a fallback. | Can be perceived as more subjective, potentially leading to disputes over the “commercial reasonableness” of the calculation. |
| Operational Burden | High procedural burden ▴ requires identifying and polling multiple Reference Market-makers and documenting the process. | High analytical burden ▴ requires robust internal models, data sources, and a documented methodology to justify the calculation. |
| Ideal Use Case | Vanilla, highly liquid interest rate or FX swaps in stable market conditions. | All derivatives, but especially complex, structured, or illiquid products and during periods of systemic market stress. |

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## The “value Clean” Vs “value Dirty” Distinction

A profound strategic difference, clarified by case law, is how the creditworthiness of the parties is treated. Under the 1992 ISDA, valuations for Market Quotation were generally performed on a “value clean” basis, meaning the credit risk of the defaulted counterparty was ignored. The valuation assumed the replacement transaction would run to maturity without issue.

The [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)’s Close-Out Amount explicitly reverses this. The valuation must take into account the economic effect of the termination itself, including the creditworthiness of the party providing the quote and any embedded optionality or termination rights. This “value dirty” approach is strategically more realistic.

It acknowledges that replacing a derivative with a new counterparty involves assuming a new credit risk profile, and the cost of doing so is a real and calculable component of the economic loss. For institutions with sophisticated counterparty risk management systems, the Close-Out Amount provides a framework that aligns directly with their internal risk valuation methodologies.

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## Execution

The execution of a close-out valuation is a high-stakes process where procedural precision and analytical rigor are paramount. The operational workflows for Market Quotation and Close-Out Amount are fundamentally different, demanding distinct skill sets, technologies, and documentation standards. A failure in execution can lead to significant financial loss, protracted legal disputes, and regulatory scrutiny. Mastering the execution of the chosen methodology is a core competency for any institution engaged in derivatives trading.

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## The Market Quotation Execution Playbook

Executing a valuation under the Market Quotation methodology is a highly structured, process-driven task. The determining party must follow a clear, auditable sequence of steps to ensure the result is defensible. The entire process is designed to withstand challenges that the valuation was unfair or biased.

- **Identification of Reference Market-makers** ▴ The first step is to consult the ISDA Schedule to identify the agreed-upon list of Reference Market-makers. These are typically leading dealers in the relevant underlying asset class.

- **Preparation of the Quotation Request** ▴ The determining party must prepare a request that specifies the precise economic terms of the terminated transaction. This includes the notional amount, maturity date, payment dates, reference rates, and any other material terms needed to price a replacement transaction.

- **Solicitation of Quotations** ▴ The party must contact at least the minimum number of dealers specified in the agreement (typically four) and request a firm quotation for entering into a replacement transaction. This process must be conducted in good faith and documented meticulously, recording the time of the request and the identity of the person contacted at each dealer.

- **Handling Dealer Responses** ▴ All responses, including refusals to quote, must be recorded. If a dealer provides a quote, its value and the time it was given are logged. If fewer than the required number of quotes are obtained (e.g. fewer than three), the Market Quotation method is deemed to have failed.

- **Calculation of the [Settlement Amount](https://prime.greeks.live/area/settlement-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ Assuming a sufficient number of quotes are received, the final value is calculated according to the formula in the agreement. For instance, if four quotes are obtained, the highest and lowest are discarded, and the arithmetic mean of the remaining two becomes the Market Quotation.

- **Documentation and Notification** ▴ The entire process, from dealer selection to the final calculation, must be thoroughly documented to create a defensible audit trail. The determining party then uses this value to calculate the final settlement amount and notifies the counterparty, providing details of the quotes obtained.

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## The Close-Out Amount Execution Framework

Executing a Close-Out Amount calculation is an analytical exercise rather than a purely procedural one. It requires the determining party to leverage its internal expertise and systems to construct a valuation that is [commercially reasonable](https://prime.greeks.live/question/what-specific-steps-constitute-commercially-reasonable-procedures-in-a-close-out/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). The key is building a robust and defensible rationale for the final number.

The framework for this calculation is guided by the principles laid out in the 2002 [ISDA Master Agreement](https://prime.greeks.live/area/isda-master-agreement/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), which gives the determining party significant discretion, provided it acts in good faith.

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## Data and Information Inputs

The strength of a Close-Out Amount calculation lies in the breadth and quality of the information used. The methodology explicitly permits a wide range of inputs:

- **Internal Models** ▴ A firm can use its own proprietary, industry-standard pricing models to value the terminated transaction. This is particularly crucial for complex or exotic derivatives where no external market exists.

- **Third-Party Quotations** ▴ The determining party is still free to obtain quotes from dealers, but these quotes are just one potential input among many. They are not the sole determinant of value as they are under Market Quotation.

- **Market Data** ▴ Information from relevant market data sources can be incorporated. This includes prices from electronic trading platforms, data from inter-dealer brokers, and information from consensus pricing services.

- **[Hedging Costs](https://prime.greeks.live/area/hedging-costs/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)** ▴ The calculation can include the gains or losses associated with terminating, liquidating, or re-establishing any hedges related to the terminated transaction. This provides a far more complete picture of the economic impact.

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## The Principle of Commercial Reasonableness

This principle is the cornerstone of the Close-Out Amount execution. To defend its calculation, a firm must be able to demonstrate that its procedures were commercially reasonable. This involves:

- **Documented Methodology** ▴ Having a pre-defined and internally approved policy for how close-out valuations are conducted.

- **Consistent Application** ▴ Applying the methodology consistently across different counterparties and transactions.

- **Verifiable Inputs** ▴ Using data inputs that can be verified, whether from internal systems with clear model validation or from recognized external sources.

- **Expert Judgment** ▴ Involving experienced traders, risk managers, and quantitative analysts in the valuation process to provide and document expert judgment where necessary.

The following table provides a comparative summary of the data inputs for the two execution methodologies.

| Input Category | Permissible under Market Quotation | Permissible under Close-Out Amount |
| --- | --- | --- |
| Reference Market-maker Quotes | Yes (Mandatory and determinative) | Yes (Optional and one of many potential inputs) |
| Internal Pricing Models | No (Except under fallback to Loss) | Yes (A primary and acceptable method) |
| Third-Party Valuation Services | No | Yes |
| Data from Electronic Platforms | No | Yes |
| Gains/Losses on Hedges | No (Valuation is for the transaction in isolation) | Yes (Explicitly permitted) |
| Replacement Cost of Credit | No (Generally considered “value clean”) | Yes (Part of the “commercially reasonable” calculation) |

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## References

- International Swaps and Derivatives Association. “ISDA Close-out Amount Protocol.” ISDA, 2009.

- APSA Asia. “Closing out ISDA Contracts ▴ a Practical Guide.” Asia Pacific Loan Market Association, 2020.

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

- “The 2002 ISDA Master Agreement Made Simple.” Global Capital, 6 January 2003.

- “Market Quotation – 1992 ISDA Provision.” The Jolly Contrarian, 14 August 2024.

- Henderson, Skye. The ISDA Master Agreement ▴ A Practical Guide. LexisNexis, 2015.

- Firth, John. A User’s Guide to the 2002 ISDA Master Agreement. Euromoney Books, 2003.

- Flavell, Antony. Swaps and Other Derivatives. John Wiley & Sons, 2002.

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## Reflection

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## System Integrity under Duress

The choice of a close-out methodology is ultimately a reflection of an institution’s philosophy on risk and its confidence in its own internal systems. The rigid, externalized process of Market Quotation can be seen as a legacy system, one that prioritizes a simplified notion of objectivity over practical resilience. It functions adequately under stable conditions but reveals its brittleness at the precise moment it is most needed ▴ during a market crisis.

Adopting the Close-Out Amount framework is a commitment to a more sophisticated and integrated operational architecture. It requires an institution to have faith in its own valuation models, its risk management protocols, and its ability to construct a defensible argument for economic reality. This is a system that internalizes the valuation process, leveraging the full spectrum of available data to arrive at a conclusion.

The question for any financial institution is not simply which method is specified in its legacy agreements, but which methodology its own internal systems are truly built to execute with precision, speed, and authority when a counterparty defaults. The integrity of the close-out process is a direct measure of the integrity of the firm’s entire risk management framework.

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## Glossary

<a href="https://prime.greeks.live/question/how-does-the-close-out-amount-methodology-differ-from-market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Market Quotation Methodology

Close-Out Amount is a flexible, principles-based valuation, while Market Quotation is a rigid, quote-driven protocol. </a><a href="https://prime.greeks.live/question/how-does-the-close-out-amount-methodology-differ-from-market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Close-Out Amount Methodology

Close-Out Amount is a flexible, principles-based valuation, while Market Quotation is a rigid, quote-driven protocol. </a><a href="https://prime.greeks.live/question/what-are-the-operational-risks-associated-with-the-market-quotation-method-during-a-systemic-crisis/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Market Quotation Method

Operational risk in quotation methods during a crisis stems from counterparty failure, liquidity evaporation, and information decay. </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 entities that provide continuous, executable two-sided price quotes for specific financial instruments, serving as a primary source for valuation and liquidity within a defined market segment. </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">
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## 2002 Isda Master Agreement

Meaning ▴ The 2002 ISDA Master Agreement represents a standardized bilateral contractual framework for over-the-counter (OTC) derivatives transactions. </a><a href="https://prime.greeks.live/question/can-a-determining-party-unilaterally-revise-a-close-out-calculation-after-it-has-been-issued/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
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## Determining Party

A Determining Party cannot unilaterally revise a close-out calculation; the process is designed for binding finality. </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">
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## Commercially Reasonable Procedures

Meaning ▴ Commercially Reasonable Procedures defines the standard of conduct for actions taken within a financial context, mandating diligence and adherence to prevailing market practices and conditions. </a><a href="https://prime.greeks.live/question/what-are-the-primary-risks-associated-with-using-poorly-governed-internal-valuation-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Intricate circuit boards and a precision metallic component depict the core technological infrastructure for Institutional Digital Asset Derivatives trading. This embodies high-fidelity execution and atomic settlement through sophisticated market microstructure, facilitating RFQ protocols for private quotation and block trade liquidity within a Crypto Derivatives OS](https://options.greeks.live/wp-content/uploads/2025/08/institutional-crypto-derivatives-execution-system-microstructure.jpg)

## Internal Pricing Models

Poorly governed valuation models create systemic risk by corrupting the data underpinning financial, operational, and strategic decisions. </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">
![A sleek, futuristic institutional grade platform with a translucent teal dome signifies a secure environment for private quotation and high-fidelity execution. A dark, reflective sphere represents an intelligence layer for algorithmic trading and price discovery within market microstructure, ensuring capital efficiency for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-rfq-execution-for-institutional-digital-asset-derivatives-1.jpg)

## Market Quotation

Meaning ▴ A market quotation represents the current executable bid and ask prices for a specific financial instrument, typically accompanied by the corresponding tradable sizes or market depth at various price levels. </a><a href="https://prime.greeks.live/question/what-constitutes-a-commercially-reasonable-procedure-for-valuing-a-terminated-derivative/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An abstract composition of interlocking, precisely engineered metallic plates represents a sophisticated institutional trading infrastructure. Visible perforations within a central block symbolize optimized data conduits for high-fidelity execution and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-multi-leg-execution-layer.jpg)

## Terminated Transaction

A commercially reasonable valuation is a defensible process for determining a terminated derivative's economic worth. </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 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)

## Close-Out Amount

Meaning ▴ The Close-Out Amount represents the definitive financial value required to terminate a derivatives contract or position, typically calculated upon a default event or a pre-defined termination trigger. </a><a href="https://prime.greeks.live/area/valuation-methodology/?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)

## Valuation Methodology

Meaning ▴ A structured computational framework or set of procedures employed to ascertain the current economic worth of a financial instrument, portfolio, or enterprise, typically utilizing established financial models and market data inputs. </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 cutaway reveals the intricate market microstructure of an institutional-grade platform. Internal components signify algorithmic trading logic, supporting high-fidelity execution via a streamlined RFQ protocol for aggregated inquiry and price discovery within a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/high-fidelity-execution-for-digital-asset-derivatives-via-rfq-protocols.jpg)

## Counterparty Risk

Meaning ▴ Counterparty risk denotes the potential for financial loss stemming from a counterparty's failure to fulfill its contractual obligations in a transaction. </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">
![A transparent cylinder containing a white sphere floats between two curved structures, each featuring a glowing teal line. This depicts institutional-grade RFQ protocols driving high-fidelity execution of digital asset derivatives, facilitating private quotation and liquidity aggregation through a Prime RFQ for optimal block trade atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-high-fidelity-execution-6.jpg)

## 1992 Isda

Meaning ▴ The 1992 ISDA Master Agreement represents a standardized contractual framework for privately negotiated over-the-counter (OTC) derivative transactions between two counterparties. </a><a href="https://prime.greeks.live/question/how-do-pricing-models-for-long-dated-crypto-options-differ-from-traditional-models/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A split spherical mechanism reveals intricate internal components. This symbolizes an Institutional Digital Asset Derivatives Prime RFQ, enabling high-fidelity RFQ protocol execution, optimal price discovery, and atomic settlement for block trades and multi-leg spreads](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-revealing-rfq-execution-core-mechanics.jpg)

## Pricing Models

Long-dated crypto option models architect for stochastic volatility and discontinuous price jumps, discarding traditional assumptions of stability. </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">
![Two distinct, polished spherical halves, beige and teal, reveal intricate internal market microstructure, connected by a central metallic shaft. This embodies an institutional-grade RFQ protocol for digital asset derivatives, enabling high-fidelity execution and atomic settlement across disparate liquidity pools for principal block trades](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-high-fidelity-execution-prime-os.jpg)

## 2002 Isda

Meaning ▴ The 2002 ISDA Master Agreement constitutes a standardized contractual framework, widely adopted within the over-the-counter (OTC) derivatives market, establishing foundational terms for bilateral derivatives transactions. </a><a href="https://prime.greeks.live/area/settlement-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A smooth, light-beige spherical module features a prominent black circular aperture with a vibrant blue internal glow. This represents a dedicated institutional grade sensor or intelligence layer for high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-intelligence-layer-for-optimal-digital-asset-rfq-execution.jpg)

## Settlement Amount

Meaning ▴ The Settlement Amount represents the definitive, agreed-upon monetary value exchanged between counterparties to discharge all financial obligations arising from a completed transaction, particularly within the domain of institutional digital asset derivatives. </a><a href="https://prime.greeks.live/question/what-specific-steps-constitute-commercially-reasonable-procedures-in-a-close-out/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A modular, dark-toned system with light structural components and a bright turquoise indicator, representing a sophisticated Crypto Derivatives OS for institutional-grade RFQ protocols. It signifies private quotation channels for block trades, enabling high-fidelity execution and price discovery through aggregated inquiry, minimizing slippage and information leakage within dark liquidity pools](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-system-for-optimal-execution-1.jpg)

## Commercially Reasonable

A system of verifiable actions, contractually defined to contain risk and determine fair value upon counterparty default. </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 sophisticated, multi-component system propels a sleek, teal-colored digital asset derivative trade. The complex internal structure represents a proprietary RFQ protocol engine with liquidity aggregation and price discovery mechanisms](https://options.greeks.live/wp-content/uploads/2025/07/principals-high-fidelity-rfq-engine-for-digital-asset-derivatives-execution.jpg)

## Isda Master Agreement

Meaning ▴ The ISDA Master Agreement is a standardized contractual framework for privately negotiated over-the-counter (OTC) derivatives transactions, establishing common terms for a wide array of financial instruments. </a><a href="https://prime.greeks.live/area/hedging-costs/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![An exposed high-fidelity execution engine reveals the complex market microstructure of an institutional-grade crypto derivatives OS. Precision components facilitate smart order routing and multi-leg spread strategies](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-engine-microstructure-2.jpg)

## Hedging Costs

Meaning ▴ Hedging costs represent the aggregate expenses incurred when executing financial transactions designed to mitigate or offset existing market risks, encompassing direct and indirect charges. </a>

**Tags:** [2002 ISDA](https://options.greeks.live/area/2002-isda/), [Hedging Costs](https://options.greeks.live/area/hedging-costs/), [Settlement Amount](https://options.greeks.live/area/settlement-amount/), [Valuation Methodology](https://options.greeks.live/area/valuation-methodology/), [ISDA Master Agreement](https://options.greeks.live/area/isda-master-agreement/), [Counterparty Risk](https://options.greeks.live/area/counterparty-risk/)	

## Discover More

- 
### [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.

- 
### [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 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.

- 
### [Can a Determining Party Rely Solely on Internal Models for Valuation under the 2002 ISDA Master Agreement?](https://options.greeks.live/question/can-a-determining-party-rely-solely-on-internal-models-for-valuation-under-the-2002-isda-master-agreement/)
![A precise teal instrument, symbolizing high-fidelity execution and price discovery, intersects angular market microstructure elements. These structured planes represent a Principal's operational framework for digital asset derivatives, resting upon a reflective liquidity pool for aggregated inquiry via RFQ protocols.](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-trading-platform-underpinning-rfq-protocol-liquidity-aggregation-and-high-fidelity-execution.jpg)

A Determining Party may use internal models for valuation, but sole reliance is conditional upon the unavailability or unreasonableness of external market data.

- 
### [What Are the Key Differences in the Events of Default between the 1992 and 2002 ISDA Agreements?](https://options.greeks.live/question/what-are-the-key-differences-in-the-events-of-default-between-the-1992-and-2002-isda-agreements/)
![Angular, transparent forms in teal, clear, and beige dynamically intersect, embodying a multi-leg spread within an RFQ protocol. This depicts aggregated inquiry for institutional liquidity, enabling precise price discovery and atomic settlement of digital asset derivatives, optimizing market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/multi-leg-digital-asset-derivatives-rfq-protocol-aggregation-dynamics.jpg)

The 2002 ISDA Agreement enhances counterparty risk management by introducing more precise default triggers and a commercially reasonable close-out process.

- 
### [What Are the Key Differences between the 1992 and 2002 Isda Close-Out Protocols?](https://options.greeks.live/question/what-are-the-key-differences-between-the-1992-and-2002-isda-close-out-protocols/)
![A segmented circular structure depicts an institutional digital asset derivatives platform. Distinct dark and light quadrants illustrate liquidity segmentation and dark pool integration. A central element signifies atomic settlement and price discovery within an RFQ protocol, ensuring high-fidelity execution and capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-liquidity-aggregation-protocols.jpg)

The 2002 ISDA protocol mandates a single, objective "Close-out Amount," replacing the 1992 version's subjective and varied options.

- 
### [Why Was the Close out Amount Introduced in the 2002 Isda Agreement?](https://options.greeks.live/question/why-was-the-close-out-amount-introduced-in-the-2002-isda-agreement/)
![A refined object featuring a translucent teal element, symbolizing a dynamic RFQ for Institutional Grade Digital Asset Derivatives. Its precision embodies High-Fidelity Execution and seamless Price Discovery within complex Market Microstructure. The reflective surface suggests deep Liquidity Pool access for Block Trade and Private Quotation protocols.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-precision-for-optimal-execution-and-deep-liquidity-aggregation.jpg)

The Close-Out Amount replaced rigid, breakable quoting rules with a resilient, principles-based valuation protocol for market crises.

- 
### [How Does the 2002 ISDA Master Agreement Differ from the 1992 Version regarding Close-Out Calculations?](https://options.greeks.live/question/how-does-the-2002-isda-master-agreement-differ-from-the-1992-version-regarding-close-out-calculations/)
![A sleek, multi-layered digital asset derivatives platform highlights a teal sphere, symbolizing a core liquidity pool or atomic settlement node. The perforated white interface represents an RFQ protocol's aggregated inquiry points for multi-leg spread execution, reflecting precise market microstructure.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-core-execution-system.jpg)

The 2002 ISDA Agreement replaces the 1992's rigid/subjective methods with a single, objective standard of commercial reasonableness.

- 
### [What Are the Key Differences between Market Quotation and Close-Out Amount Valuation Methods?](https://options.greeks.live/question/what-are-the-key-differences-between-market-quotation-and-close-out-amount-valuation-methods/)
![A sleek, spherical intelligence layer component with internal blue mechanics and a precision lens. It embodies a Principal's private quotation system, driving high-fidelity execution and price discovery for digital asset derivatives through RFQ protocols, optimizing market microstructure and minimizing latency.](https://options.greeks.live/wp-content/uploads/2025/08/principals-private-quotation-system-intelligence-layer-component.jpg)

Market Quotation is a rigid, quote-driven valuation, while Close-Out Amount is a flexible, principles-based method for derivatives.

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---

**Original URL:** https://options.greeks.live/question/what-are-the-key-differences-between-the-market-quotation-and-close-out-amount-methodologies/
