# What Is the Difference in Close out Valuation between the 1992 and 2002 Isda Agreements? ▴ Question

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

---

![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](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 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)

## Concept

![A transparent, multi-faceted component, indicative of an RFQ engine's intricate market microstructure logic, emerges from complex FIX Protocol connectivity. Its sharp edges signify high-fidelity execution and price discovery precision for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-engine-optimized-for-best-execution.jpg)

## The Point of Inflection in Counterparty Risk

The architecture of over-the-counter derivatives contracts rests upon a foundational principle ▴ the reliable and predictable management of default. When a counterparty fails, the surviving entity must crystallize its exposure, a process known as [close-out netting](https://prime.greeks.live/area/close-out-netting/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite). This is the moment where abstract market risk becomes a concrete financial obligation. The International Swaps and Derivatives Association (ISDA) [Master Agreement](https://prime.greeks.live/question/in-what-ways-does-the-single-agreement-principle-of-the-isda-master-agreement-differ-from-traditional-contract-law/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) provides the universal operating system for this critical function.

Examining the evolution of its [close-out valuation](https://prime.greeks.live/question/what-are-the-primary-legal-risks-when-enforcing-an-isda-close-out-valuation-in-court/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) methodologies between the 1992 and 2002 versions reveals a significant recalibration in the balance between contractual flexibility and objective fairness. This was not a minor software patch; it was a fundamental change in the system’s core logic, driven by years of market stress and legal challenges that exposed the ambiguities of the earlier framework.

Understanding this evolution is essential for any institution navigating the complexities of derivatives. The shift from the 1992 Agreement’s dual-track system of “[Market Quotation](https://prime.greeks.live/area/market-quotation/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” and “Loss” to the 2002 Agreement’s unified “Close-out Amount” represents a deliberate effort to inject greater rigor, transparency, and [commercial reasonableness](https://prime.greeks.live/question/how-can-a-firm-systematically-document-its-process-to-prove-commercial-reasonableness-in-a-dispute/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) into the termination process. The 1992 Agreement, born in a different era of market structure, provided parties with a choice that carried profound implications. One path, Market Quotation, was rigid and prescriptive, relying on external dealer quotes.

The other, Loss, was broad and subjective, based on the [non-defaulting party](https://prime.greeks.live/question/in-what-scenarios-might-a-non-defaulting-party-strategically-prefer-the-standard-close-out-process-over-aet/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)’s internal assessment of its damages. This bifurcation created uncertainty and potential for disputes, particularly in volatile or illiquid markets where the prescribed methods could produce results that felt disconnected from economic reality.

> The transition from the 1992 to the 2002 ISDA framework marks a pivotal shift from a subjective rationality standard to an objective test of commercial reasonableness in close-out valuations.

The 2002 ISDA Master Agreement sought to resolve these tensions by collapsing the choice into a single, more robust standard. The “Close-out Amount” is a holistic measure designed to reflect a true economic replacement cost. Its definition moves away from the procedural rigidity of Market Quotation and the potential opacity of Loss. Instead, it establishes a new, higher standard ▴ the determining party must use “[commercially reasonable procedures](https://prime.greeks.live/question/what-steps-should-a-firm-take-to-ensure-its-close-out-procedures-are-commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) 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 phrasing, seemingly simple, fundamentally altered the legal and operational landscape.

It replaced a standard of [good faith](https://prime.greeks.live/area/good-faith/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) rationality with a more demanding, objective test that could be scrutinized in court. This evolution reflects a maturation of the derivatives market, demanding a framework that not only works in calm conditions but also provides a resilient and defensible process during periods of systemic crisis.

![A slender metallic probe extends between two curved surfaces. This abstractly illustrates high-fidelity execution for institutional digital asset derivatives, driving price discovery within market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/precision-instrument-navigating-institutional-digital-asset-derivatives-rfq-protocols-for-optimal-price-discovery-and-high-fidelity-execution.jpg)

![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)

## Strategy

![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)

## A Tale of Two Standards

The strategic choice between the 1992 and [2002 ISDA](https://prime.greeks.live/area/2002-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) Master Agreements hinges on the parties’ appetite for discretion versus their need for objective, defensible valuation. The core difference lies in the protocols for calculating the amount owed upon early termination. The 1992 Agreement presents a fork in the road, forcing parties to elect between two distinct valuation mechanisms at the outset of their relationship ▴ Market Quotation or Loss. This initial choice has significant downstream consequences for how risk is managed and calculated in a default scenario.

The 2002 Agreement eliminates this bifurcation. It introduces a single, unified methodology known as the “[Close-out Amount](https://prime.greeks.live/area/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).” This was a direct response to the market’s experience with the 1992 framework, which had proven problematic under stress. The design philosophy of the 2002 Agreement was to create a more flexible, yet more accountable, standard that better reflected the true economic cost of replacing terminated transactions in a real-world market environment.

![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)

## The 1992 ISDA Dichotomy Market Quotation and Loss

Under the 1992 Agreement, the selection of a valuation method within the schedule is a critical strategic decision. The two available methods, Market Quotation and Loss, offer a trade-off between procedural certainty and situational flexibility.

- **Market Quotation** ▴ This method is procedurally prescriptive. The non-defaulting party is required to seek quotations from at least four leading dealers in the relevant market ([Reference Market-makers](https://prime.greeks.live/question/how-does-finra-define-the-reference-price-in-highly-volatile-market-conditions/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)) for a transaction that would replace the terminated one. The calculation is based on the average of the quotes obtained. The intent is to provide an objective, market-based valuation. However, its rigidity can be a significant drawback. In illiquid, volatile, or one-sided markets (such as those seen during major financial crises), obtaining the required number of quotes can be impossible. Furthermore, the quotes might not reflect executable prices, leading to a valuation that is disconnected from the non-defaulting party’s actual replacement cost.

- **Loss** ▴ This method provides far greater flexibility. It allows the non-defaulting party to determine, in good faith, the total losses and costs it incurs as a result of the early termination. This can include the cost of replacing the transaction, the cost of hedging its exposure, and any associated funding costs. While this allows the valuation to be tailored to the specific circumstances, its subjective nature can be a source of contention. 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)’s calculation is subject to a legal standard of “rationality,” meaning it cannot be overturned unless it is a decision that no reasonable party would have made. This is a relatively low bar, giving considerable deference to the calculating party.

A significant feature of valuation under the 1992 Agreement was the “[value clean](https://prime.greeks.live/area/value-clean/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” approach. This legal doctrine meant that valuations were performed under the assumption that the replacement transaction would run to its scheduled maturity, without factoring in the potential for early termination due to credit events. This ignored the real-world pricing impact of counterparty credit risk and embedded [termination rights](https://prime.greeks.live/question/what-are-the-most-critical-rights-to-include-in-an-rfp-reservation-of-rights-clause/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite).

![A macro view reveals the intricate mechanical core of an institutional-grade system, symbolizing the market microstructure of digital asset derivatives trading. Interlocking components and a precision gear suggest high-fidelity execution and algorithmic trading within an RFQ protocol framework, enabling price discovery and liquidity aggregation for multi-leg spreads on a Prime RFQ](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-execution-system-precision-engine.jpg)

## The 2002 ISDA Synthesis the Close-Out Amount

The 2002 Agreement’s “Close-out Amount” was engineered to overcome the deficiencies of the 1992 methods. It is a single, flexible, and principles-based standard that aims to produce a result that is fair and economically sound. The definition of Close-out Amount allows the determining party to use a variety of information sources, including quotes from third parties, relevant [market data](https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite), and information from internal pricing models. This flexibility is balanced by a higher legal standard.

> The 2002 ISDA’s “Close-out Amount” imposes a dual obligation ▴ the valuation process must be commercially reasonable, and the final valuation itself must also be commercially reasonable.

The determining party must act in good faith and “use [commercially reasonable](https://prime.greeks.live/area/commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) procedures in order to produce 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 imposes two distinct obligations ▴ the process must be sound, and the outcome must be fair. This is an objective test, inviting greater scrutiny than the “rationality” standard of the 1992 Agreement. A court can examine both the methodology used and the final figure to determine if they align with what a reasonable commercial party would do in the same circumstances.

Crucially, the 2002 Agreement explicitly reverses the “value clean” approach. The definition of Close-out Amount requires the valuation to account for the economic effect of any existing termination rights and the creditworthiness of the parties. This leads to a more realistic, “[value dirty](https://prime.greeks.live/area/value-dirty/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite)” assessment that reflects the true market value of the terminated transactions at the time of default.

![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)

## Comparative Framework of Valuation Protocols

The following tables provide a structured comparison of the valuation methodologies, highlighting the key operational and legal distinctions that drive the strategic preference for one agreement over the other.

![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)

## Table 1 Key Attributes of Valuation Methods

| Feature | 1992 ISDA – Market Quotation | 1992 ISDA – Loss | 2002 ISDA – Close-out Amount |
| --- | --- | --- | --- |
| Valuation Basis | Average of quotes from four Reference Market-makers for a replacement transaction. | Determining party’s calculation of its total losses and costs. | A single amount reflecting gains or losses, and costs of replacing or providing the economic equivalent of the terminated transactions. |
| Flexibility of Method | Highly prescriptive and rigid. Little room for discretion. | Highly flexible and subjective. Allows for internal calculation. | Flexible and principles-based. Allows use of quotes, market data, and internal models. |
| Legal Standard | Good faith and reasonableness (interpreted as rationality). | Good faith and reasonableness (interpreted as rationality). | Good faith and the use of commercially reasonable procedures to produce a commercially reasonable result (an objective test). |
| Treatment of Credit Risk | “Value Clean” – Ignores the credit quality of the counterparty and termination rights. | “Value Clean” – Ignores the credit quality of the counterparty and termination rights. | “Value Dirty” – Explicitly includes the economic effect of creditworthiness and termination rights. |
| Potential for Dispute | High, if quotes are unavailable or unrepresentative of the market. | High, due to the subjective nature of the calculation. | Lower, due to the clear, objective standard, but disputes can arise over what is “commercially reasonable.” |

![A translucent teal dome, brimming with luminous particles, symbolizes a dynamic liquidity pool within an RFQ protocol. Precisely mounted metallic hardware signifies high-fidelity execution and the core intelligence layer for institutional digital asset derivatives, underpinned by granular market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-core-intelligence-layer.jpg)

## Table 2 Operational Implications for the Determining Party

| Operational Step | 1992 ISDA – Market Quotation | 1992 ISDA – Loss | 2002 ISDA – Close-out Amount |
| --- | --- | --- | --- |
| Information Gathering | Must actively solicit quotes from four specified or agreed-upon dealers. | Can rely on internal records, calculations, and assessments of replacement costs. | Can use a wide range of sources ▴ internal models, dealer quotes, market data feeds, etc. Must be able to justify the choice of sources. |
| Documentation Burden | Must document attempts to obtain quotes and the quotes received. | Must document the basis for the loss calculation, including all costs and losses claimed. | Must maintain detailed records of the procedures followed and the data used to demonstrate commercial reasonableness. |
| Execution in Stressed Markets | May fail if dealers are unwilling or unable to provide quotes. | More resilient, as it does not depend on external parties, but the result may be viewed as self-serving. | Designed to be more resilient by allowing for alternative valuation methods when quotes are unavailable. |
| Legal Defensibility | Defensible if the procedure is followed exactly. Vulnerable if there are deviations. | Defensible as long as the result is not irrational. Gives significant deference to the calculator. | Requires a robust defense of both the process and the outcome against an objective standard of commercial reason. |

![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)

![Detailed metallic disc, a Prime RFQ core, displays etched market microstructure. Its central teal dome, an intelligence layer, facilitates price discovery](https://options.greeks.live/wp-content/uploads/2025/07/principal-operating-system-intelligence-layer-powering-digital-asset-derivatives-rfq-protocols-for-optimal-execution.jpg)

## Execution

![A precision mechanism with a central circular core and a linear element extending to a sharp tip, encased in translucent material. This symbolizes an institutional RFQ protocol's market microstructure, enabling high-fidelity execution and price discovery for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/precision-engineered-institutional-digital-asset-derivatives-rfq-execution-engine-microstructure-facilitating-optimal-price-discovery-and-best-execution.jpg)

## From Theory to Terminal Value

The execution of a close-out valuation is a high-stakes process where legal theory and financial reality converge. For the non-defaulting party, this is the mechanism to mitigate loss and crystallize a claim. For the defaulting party, it is a critical determinant of its remaining obligations or assets. The procedural differences between the 1992 and 2002 ISDA frameworks are not merely academic; they dictate the operational steps, the evidence required, and the legal scrutiny a determining party must be prepared to face.

![An abstract visual depicts a central intelligent execution hub, symbolizing the core of a Principal's operational framework. Two intersecting planes represent multi-leg spread strategies and cross-asset liquidity pools, enabling private quotation and aggregated inquiry for institutional digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-protocol-engine-for-institutional-digital-asset-derivatives.jpg)

## A Procedural Walk-Through of Close-Out Calculation

Imagine a scenario where a bank (the non-defaulting party) must terminate a series of interest rate [swaps](https://prime.greeks.live/area/swaps/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) with a hedge fund (the defaulting party) that has failed to meet a margin call. The execution of the close-out valuation would follow a markedly different path depending on the governing ISDA Agreement.

- 
**Under the [1992 ISDA](https://prime.greeks.live/area/1992-isda/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) (Market Quotation Method)** ▴ 

<li>**Step 1 ▴ Identify Reference Market-makers.** The bank’s operations team must first consult the ISDA schedule to identify the agreed-upon Reference Market-makers. If none are specified, they must identify four leading dealers in the relevant interest rate swap market.

- **Step 2 ▴ Solicit Quotations.** The bank must request each of the four dealers to provide a firm quote for entering into a replacement swap with the same terms and remaining maturity as the terminated transaction. This process must be documented meticulously, including the time of the requests and the responses received.

- **Step 3 ▴ Handle Non-Responsive Dealers.** If one or more dealers fail to provide a quote, the bank must demonstrate it made a reasonable effort. If fewer than two quotes are received, the Market Quotation method fails, and the bank may be forced to use the [Loss method](https://prime.greeks.live/area/loss-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) as a fallback, creating procedural complexity.

- **Step 4 ▴ Calculate the Settlement Amount.** Assuming sufficient quotes are obtained, the bank averages the quotations. Any quotes that are outliers may potentially be excluded, but this action must be justifiable. The resulting average forms the basis of the “Settlement Amount” owed by or to the hedge fund. The calculation must adhere to the “value clean” principle, ignoring the now-defaulted status of the counterparty.

</li>
- 
**Under the 1992 ISDA (Loss Method)** ▴ 

<li>**Step 1 ▴ Internal Assessment.** The bank’s trading desk and risk department would calculate their total losses and costs associated with the termination. This is a broader calculation than Market Quotation.

- **Step 2 ▴ Component Aggregation.** The calculation could include the cost of entering into a replacement hedge (which might not be an identical swap), any funding costs incurred because of the default, and administrative expenses.

- **Step 3 ▴ Good Faith Determination.** The bank’s internal governance process must sign off on the final Loss amount, with a certification that it was determined in good faith. The key is to document a rational basis for every component of the loss claimed. The legal threshold is to avoid a calculation that is “perverse or irrational.”

</li>
- 
**Under the 2002 ISDA (Close-out Amount Method)** ▴ 

<li>**Step 1 ▴ Select a Commercially Reasonable Procedure.** The bank has flexibility. It can choose to poll dealers (similar to Market Quotation but without the rigid four-quote rule), use its internal, model-based valuations (marked-to-model), or use a combination of market data and observable inputs. The choice of procedure must be commercially reasonable in the context of the market conditions at the time.

- **Step 2 ▴ Gather and Synthesize Data.** The bank would gather all relevant information. This includes the “value dirty” aspect ▴ factoring in the cost of transacting with a new counterparty and the economic impact of any embedded options or termination rights that were present in the original swaps. For instance, the valuation would reflect the reality that a replacement swap no longer has the [credit risk](https://prime.greeks.live/area/credit-risk/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite) of the now-defaulted hedge fund.

- **Step 3 ▴ Produce a Commercially Reasonable Result.** The final number must be justifiable as a fair representation of the bank’s economic loss (or gain). This involves a two-part test ▴ was the process reasonable, and was the outcome reasonable? The bank cannot simply pick the valuation that is most favorable to it; the result must fall within a range of what would be considered commercially reasonable by an objective observer.

- **Step 4 ▴ Document Everything.** Given the higher standard of objective reasonableness, the documentation burden is arguably the highest under this method. The bank must be prepared to defend its choice of methodology, the inputs used, the calculations performed, and the final result in a potential legal challenge.

</li>

![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)

## Quantitative and Qualitative Distinctions

The choice of agreement and valuation method leads to tangible differences in the final close-out value. The following hypothetical example illustrates this divergence.

![An abstract digital interface features a dark circular screen with two luminous dots, one teal and one grey, symbolizing active and pending private quotation statuses within an RFQ protocol. Below, sharp parallel lines in black, beige, and grey delineate distinct liquidity pools and execution pathways for multi-leg spread strategies, reflecting market microstructure and high-fidelity execution for institutional grade digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-protocol-displaying-multi-leg-execution-status-and-optimal-liquidity-pathways.jpg)

## Table 3 Hypothetical Valuation Scenario Interest Rate Swap

| Valuation Component | 1992 ISDA – Market Quotation | 1992 ISDA – Loss | 2002 ISDA – Close-out Amount |
| --- | --- | --- | --- |
| Replacement Cost (Quotes/Model) | $5,000,000 (Average of 3 dealer quotes; 1 dealer did not quote) | $5,200,000 (Based on actual replacement hedge executed in a volatile market) | $5,150,000 (Based on internal model calibrated to market data and two indicative dealer quotes) |
| Funding Costs | Not explicitly included. | $150,000 (Documented cost of funding the position until replacement) | Considered as part of providing the “economic equivalent.” Could be embedded in the model or added as a separate cost. |
| Credit Valuation Adjustment (CVA) | Not included (“Value Clean”). | Not included (“Value Clean”). | -$250,000 (Adjustment to reflect the removal of the defaulting party’s credit risk from the valuation) |
| Administrative Costs | Not included in Settlement Amount (recovered separately as “Expenses”). | $50,000 (Legal and administrative time spent on the default) | Included as part of the costs of preserving the economic equivalent of the transaction. |
| Final Calculated Amount | $5,000,000 | $5,400,000 | $4,900,000 |

This simplified example shows how the 2002 Agreement’s “value dirty” approach, by incorporating the CVA adjustment, can result in a lower claim amount, which might be a more accurate reflection of the non-defaulting party’s true economic position. The Loss method under the 1992 Agreement yields the highest amount, but it carries the risk of being challenged as an unreasonable, self-serving calculation. Market Quotation, while seemingly objective, was hindered by the lack of a fourth quote and may not have captured the true cost in a dislocated market.

> Under the 2002 ISDA, the burden of proof shifts to the determining party to affirmatively demonstrate the commercial reasonableness of its actions, a stark contrast to the 1992 standard where a valuation stood unless proven irrational.

Ultimately, the execution of a close-out valuation under the 2002 ISDA demands a more sophisticated operational infrastructure. It requires robust, auditable models, real-time access to market data, and a clear governance framework for making and documenting decisions. While the 1992 Agreement may appear simpler on its face, its ambiguities and procedural rigidities create their own set of execution risks. The 2002 Agreement, by contrast, provides a flexible and resilient framework, but it does so in exchange for placing a significantly higher burden of objective reasonableness and transparency on the party performing the calculation.

![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)

## References

- Wood, Philip. 2009. The Law and Practice of International Finance. Sweet & Maxwell.

- Hudson, Alastair. 2013. The Law of Finance. Sweet & Maxwell.

- International Swaps and Derivatives Association. 2003. 2002 ISDA Master Agreement Protocol. ISDA.

- Gregory, Jon, and Edmund Parker. 2015. The Law and Practice of Derivative Products. LexisNexis.

- Flavell, Antony. 2010. Swaps and Other Derivatives. John Wiley & Sons.

- Mengle, David. 2010. “The ISDA Master Agreement ▴ A Practical Guide.” Wharton Financial Institutions Center Working Paper.

- Firth, John. 2018. “Close-out netting.” Butterworths Journal of International Banking and Financial Law.

- Skipp, Martin. 2014. “Derivatives Close-out Netting ▴ A United Kingdom and International Perspective.” Capital Markets Law Journal.

- Johnson, Paul. 2016. “Valuation in Insolvency.” Oxford University Press.

- Grant, Andrew. 2019. Law of Guarantees. Sweet & Maxwell.

![A macro view reveals a robust metallic component, signifying a critical interface within a Prime RFQ. This secure mechanism facilitates precise RFQ protocol execution, enabling atomic settlement for institutional-grade digital asset derivatives, embodying high-fidelity execution](https://options.greeks.live/wp-content/uploads/2025/07/core-secure-institutional-digital-asset-derivatives-rfq-trade-system-element.jpg)

## Reflection

![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)

## The Architecture of Financial Resilience

The progression from the 1992 to 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) is more than a legal footnote; it is a case study in the maturation of a market’s core operating system. The frameworks reveal a deeper truth about financial engineering ▴ that robust systems are not those that eliminate discretion, but those that channel it through principles of objective reason and transparency. The close-out valuation process, at its heart, is an attempt to answer a difficult question in a moment of crisis ▴ what has truly been lost?

The 1992 Agreement offered two distinct answers, one based on a rigid external poll and another on a subjective internal view. The 2002 Agreement reframed the question itself, demanding a holistic and defensible assessment of economic reality.

For institutions today, the choice of agreement and the design of their internal valuation protocols are reflections of their own operational philosophy. A reliance on older frameworks may seem simpler, but it carries the latent risk of ambiguity and dispute when stress reveals its flaws. Building a valuation process that aligns with the principles of the 2002 Agreement ▴ procedural soundness, evidentiary rigor, and objective outcomes ▴ is an investment in financial resilience.

It ensures that in the critical moment of a counterparty default, the institution’s actions are not just contractually permitted, but commercially and legally defensible. The ultimate edge lies not in the letter of the contract alone, but in the institutional capability to execute its terms with unimpeachable integrity.

![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)

## Glossary

<a href="https://prime.greeks.live/area/close-out-netting/?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)

## Close-Out Netting

Meaning ▴ Close-out netting is a contractual mechanism within financial agreements, typically master agreements, designed to consolidate all mutual obligations between two counterparties into a single net payment upon the occurrence of a specified termination event, such as default or insolvency. </a><a href="https://prime.greeks.live/question/in-what-ways-does-the-single-agreement-principle-of-the-isda-master-agreement-differ-from-traditional-contract-law/?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)

## Master Agreement

The ISDA's Single Agreement principle architects a unified risk entity, replacing severable contracts with one indivisible agreement to enable close-out netting. </a><a href="https://prime.greeks.live/question/what-are-the-primary-legal-risks-when-enforcing-an-isda-close-out-valuation-in-court/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A symmetrical, high-tech digital infrastructure depicts an institutional-grade RFQ execution hub. Luminous conduits represent aggregated liquidity for digital asset derivatives, enabling high-fidelity execution and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-institutional-digital-asset-derivatives-rfq-system.jpg)

## Close-Out Valuation

Enforcing an ISDA close-out valuation hinges on proving the objective commercial reasonableness of your procedure, not just the final number. </a><a href="https://prime.greeks.live/question/how-can-a-firm-systematically-document-its-process-to-prove-commercial-reasonableness-in-a-dispute/?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)

## Commercial Reasonableness

A firm proves commercial reasonableness by architecting a system that prospectively documents objective, data-driven business judgments. </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 transparent glass sphere rests precisely on a metallic rod, connecting a grey structural element and a dark teal engineered module with a clear lens. This symbolizes atomic settlement of digital asset derivatives via private quotation within a Prime RFQ, showcasing high-fidelity execution and capital efficiency for RFQ protocols and liquidity aggregation](https://options.greeks.live/wp-content/uploads/2025/07/architecting-high-fidelity-execution-for-institutional-digital-asset-derivatives-rfq-protocols-and-systemic-liquidity-aggregation.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/in-what-scenarios-might-a-non-defaulting-party-strategically-prefer-the-standard-close-out-process-over-aet/?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)

## Non-Defaulting Party

Preferring standard close-out is a strategic decision to exert manual control over valuation and timing in complex market or legal environments. </a><a href="https://prime.greeks.live/question/what-steps-should-a-firm-take-to-ensure-its-close-out-procedures-are-commercially-reasonable/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A complex, multi-layered electronic component with a central connector and fine metallic probes. This represents a critical Prime RFQ module for institutional digital asset derivatives trading, enabling high-fidelity execution of RFQ protocols, price discovery, and atomic settlement for multi-leg spreads with minimal latency](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-rfq-engine-driving-best-execution-and-liquidity.jpg)

## Commercially Reasonable Procedures

A firm ensures commercially reasonable close-outs by executing a systematic, documented, and risk-tiered process for finality. </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 geometric design illustrating a central RFQ aggregation hub for institutional digital asset derivatives. Radiating lines symbolize high-fidelity execution via smart order routing across dark pools](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-high-fidelity-execution-architecture.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/good-faith/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![Sleek, domed institutional-grade interface with glowing green and blue indicators highlights active RFQ protocols and price discovery. This signifies high-fidelity execution within a Prime RFQ for digital asset derivatives, ensuring real-time liquidity and capital efficiency](https://options.greeks.live/wp-content/uploads/2025/08/institutional-digital-asset-derivatives-rfq-prime-os-execution-interface.jpg)

## Good Faith

Meaning ▴ Good Faith, in a financial and operational context, denotes the adherence to honest intent and absence of fraudulent or deceptive conduct during contractual agreements and transactional processes. </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">
![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)

## 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/close-out-amount/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A polished metallic needle, crowned with a faceted blue gem, precisely inserted into the central spindle of a reflective digital storage platter. This visually represents the high-fidelity execution of institutional digital asset derivatives via RFQ protocols, enabling atomic settlement and liquidity aggregation through a sophisticated Prime RFQ intelligence layer for optimal price discovery and alpha generation](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-optimization-for-high-fidelity-execution-and-liquidity-aggregation-via-prime-os-intelligence-layer.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/question/how-does-finra-define-the-reference-price-in-highly-volatile-market-conditions/?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)

## Reference Market-Makers

FINRA defines the reference price as an adaptive benchmark, shifting from the last sale to a discretionary, multi-factor price to ensure market stability. </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">
![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)

## 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/question/what-are-the-most-critical-rights-to-include-in-an-rfp-reservation-of-rights-clause/?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)

## Termination Rights

A Reservation of Rights clause is a critical control protocol in an RFP that preserves the issuer's unilateral authority and operational flexibility. </a><a href="https://prime.greeks.live/area/value-clean/?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)

## Value Clean

Meaning ▴ Value Clean refers to the state of absolute data integrity and verified accuracy for critical financial metrics within an institutional digital asset derivatives trading ecosystem. </a><a href="https://prime.greeks.live/area/market-data/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A large, smooth sphere, a textured metallic sphere, and a smaller, swirling sphere rest on an angular, dark, reflective surface. This visualizes a principal liquidity pool, complex structured product, and dynamic volatility surface, representing high-fidelity execution within an institutional digital asset derivatives market microstructure](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-optimized-market-microstructure-precision.jpg)

## Market Data

Meaning ▴ Market Data comprises the real-time or historical pricing and trading information for financial instruments, encompassing bid and ask quotes, last trade prices, cumulative volume, and order book depth. </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">
![Angularly connected segments portray distinct liquidity pools and RFQ protocols. A speckled grey section highlights granular market microstructure and aggregated inquiry complexities for digital asset derivatives](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-efficiency.jpg)

## Commercially Reasonable

Meaning ▴ Commercially Reasonable refers to actions, terms, or conditions that a prudent party would undertake or accept in a similar business context, aiming to achieve a desired outcome efficiently and effectively while considering prevailing market conditions, industry practices, and available alternatives. </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">
![Sleek, modular system component in beige and dark blue, featuring precise ports and a vibrant teal indicator. This embodies Prime RFQ architecture enabling high-fidelity execution of digital asset derivatives through bilateral RFQ protocols, ensuring low-latency interconnects, private quotation, institutional-grade liquidity, and atomic settlement](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-rfq-system-interface-for-digital-asset-derivatives-execution.jpg)

## 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/value-dirty/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A sophisticated system's core component, representing an Execution Management System, drives a precise, luminous RFQ protocol beam. This beam navigates between balanced spheres symbolizing counterparties and intricate market microstructure, facilitating institutional digital asset derivatives trading, optimizing price discovery, and ensuring high-fidelity execution within a prime brokerage framework](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-engine-10.jpg)

## Value Dirty

Meaning ▴ Value Dirty represents the total economic valuation of a financial instrument, incorporating its clean price along with all accrued components such as interest, funding fees, or other embedded costs and benefits that have accumulated over time. </a><a href="https://prime.greeks.live/area/swaps/?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)

## Swaps

Meaning ▴ A swap constitutes a derivative contract wherein two parties agree to exchange a series of cash flows or assets over a specified period, based on a predetermined notional amount. </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 multi-faceted digital asset derivative, precisely calibrated on a sophisticated circular mechanism. This represents a Prime Brokerage's robust RFQ protocol for high-fidelity execution of multi-leg spreads, ensuring optimal price discovery and minimal slippage within complex market microstructure, critical for alpha generation](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocol-execution-precision-2.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/area/loss-method/?utm_source=options.greeks.live&utm_medium=referral&utm_campaign=satellite" class="glossary-item-box">
![A robust metallic framework supports a teal half-sphere, symbolizing an institutional grade digital asset derivative or block trade processed within a Prime RFQ environment. This abstract view highlights the intricate market microstructure and high-fidelity execution of an RFQ protocol, ensuring capital efficiency and minimizing slippage through precise system interaction](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-derivatives-rfq-protocol-execution-engine.jpg)

## Loss Method

Meaning ▴ The Loss Method defines a pre-established framework for allocating and distributing financial deficits among participants within a structured financial system, typically activated following a default event or during periods of significant market stress. </a><a href="https://prime.greeks.live/area/credit-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)

## Credit Risk

Meaning ▴ Credit risk quantifies the potential financial loss arising from a counterparty's failure to fulfill its contractual obligations within a transaction. </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">
![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)

## 2002 Isda Master Agreement

Meaning ▴ The 2002 ISDA Master Agreement represents a standardized bilateral contractual framework for over-the-counter (OTC) derivatives transactions. </a>

**Tags:** [Value Dirty](https://options.greeks.live/area/value-dirty/), [2002 ISDA](https://options.greeks.live/area/2002-isda/), [Close-Out Netting](https://options.greeks.live/area/close-out-netting/), [2002 ISDA Master Agreement](https://options.greeks.live/area/2002-isda-master-agreement/), [ISDA Master Agreement](https://options.greeks.live/area/isda-master-agreement/), [1992 ISDA](https://options.greeks.live/area/1992-isda/)	

## Discover More

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

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

- 
### [What Are the Primary Differences in Close out Procedures between the 1992 and 2002 Isda Master Agreements?](https://options.greeks.live/question/what-are-the-primary-differences-in-close-out-procedures-between-the-1992-and-2002-isda-master-agreements/)
![A precision-engineered metallic and glass system depicts the core of an Institutional Grade Prime RFQ, facilitating high-fidelity execution for Digital Asset Derivatives. Transparent layers represent visible liquidity pools and the intricate market microstructure supporting RFQ protocol processing, ensuring atomic settlement capabilities.](https://options.greeks.live/wp-content/uploads/2025/08/robust-institutional-digital-asset-derivatives-trading-platform-for-optimized-rfq-protocol-execution-and-deep-liquidity-access.jpg)

The 2002 ISDA enhances close-out by replacing subjective loss calculations with an objective, commercially reasonable standard.

- 
### [How Does the 2002 Isda Agreement Define a Commercially Reasonable Procedure?](https://options.greeks.live/question/how-does-the-2002-isda-agreement-define-a-commercially-reasonable-procedure/)
![Three metallic, circular mechanisms represent a calibrated system for institutional-grade digital asset derivatives trading. The central dial signifies price discovery and algorithmic precision within RFQ protocols. Outer elements reflect liquidity pool dynamics and high-fidelity execution in complex market microstructure, managing counterparty risk.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-protocols-and-execution-precision.jpg)

The 2002 ISDA Agreement defines a commercially reasonable procedure as an objective, good-faith valuation to find a terminated deal's economic equivalent.

- 
### [What Is the Difference between the 1992 and 2002 Isda Master Agreement Close out Standards?](https://options.greeks.live/question/what-is-the-difference-between-the-1992-and-2002-isda-master-agreement-close-out-standards/)
![Sleek Prime RFQ interface for institutional digital asset derivatives. An elongated panel displays dynamic numeric readouts, symbolizing multi-leg spread execution and real-time market microstructure. A transparent sphere signifies RFQ protocol private quotation and implied volatility, emphasizing atomic settlement and low latency.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-prime-os-rfq-options.jpg)

The 2002 ISDA replaces the 1992 version's rigid close-out options with a flexible, yet more rigorous, "Close-out Amount" standard.

- 
### [How Do Courts Determine Rationality in an ISDA Loss Calculation?](https://options.greeks.live/question/how-do-courts-determine-rationality-in-an-isda-loss-calculation/)
![A transparent glass sphere rests precisely on a metallic rod, connecting a grey structural element and a dark teal engineered module with a clear lens. This symbolizes atomic settlement of digital asset derivatives via private quotation within a Prime RFQ, showcasing high-fidelity execution and capital efficiency for RFQ protocols and liquidity aggregation.](https://options.greeks.live/wp-content/uploads/2025/07/architecting-high-fidelity-execution-for-institutional-digital-asset-derivatives-rfq-protocols-and-systemic-liquidity-aggregation.jpg)

Courts assess ISDA loss calculation rationality by applying an objective standard of commercial reasonableness to both the process and the result.

- 
### [How Does the Close-Out Amount in the 2002 ISDA Agreement Improve upon the 1992 Methodologies?](https://options.greeks.live/question/how-does-the-close-out-amount-in-the-2002-isda-agreement-improve-upon-the-1992-methodologies/)
![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 Agreement replaces rigid, disputable close-out mechanics with a unified, commercially reasonable valuation standard.

- 
### [What Is the Difference between the 1992 and 2002 ISDA Master Agreements?](https://options.greeks.live/question/what-is-the-difference-between-the-1992-and-2002-isda-master-agreements/)
![A sleek, futuristic apparatus featuring a central spherical processing unit flanked by dual reflective surfaces and illuminated data conduits. This system visually represents an advanced RFQ protocol engine facilitating high-fidelity execution and liquidity aggregation for institutional digital asset derivatives. It embodies precise price discovery, multi-leg spread processing, and atomic settlement within a Prime RFQ framework.](https://options.greeks.live/wp-content/uploads/2025/07/prime-os-digital-asset-options-rfq-liquidity-aggregation-interface.jpg)

The 2002 ISDA Agreement replaces the 1992's flexible close-out options with a single, more objective "Close-out Amount" standard.

- 
### [What Legal Challenges Can Arise When Determining a Commercially Reasonable Close out Amount?](https://options.greeks.live/question/what-legal-challenges-can-arise-when-determining-a-commercially-reasonable-close-out-amount/)
![A sophisticated, illuminated device representing an Institutional Grade Prime RFQ for Digital Asset Derivatives. Its glowing interface indicates active RFQ protocol execution, displaying high-fidelity execution status and price discovery for block trades. The design suggests robust market microstructure and capital efficiency.](https://options.greeks.live/wp-content/uploads/2025/07/principal-rfq-engine-for-digital-asset-derivatives-best-execution-1.jpg)

Navigating close-out amounts requires a precise, objective, and legally defensible valuation process.

- 
### [Why Might a Firm Still Choose to Use the 1992 ISDA Framework despite the 2002 Updates?](https://options.greeks.live/question/why-might-a-firm-still-choose-to-use-the-1992-isda-framework-despite-the-2002-updates/)
![A sharp, multi-faceted crystal prism, embodying price discovery and high-fidelity execution, rests on a structured, fan-like base. This depicts dynamic liquidity pools and intricate market microstructure for institutional digital asset derivatives via RFQ protocols, powered by an intelligence layer for private quotation.](https://options.greeks.live/wp-content/uploads/2025/07/institutional-digital-asset-derivatives-rfq-price-discovery-execution.jpg)

A firm's use of the 1992 ISDA is a calculated choice prioritizing the deep legal certainty of established precedent over newer mechanics.

---

## Raw Schema Data

```json
{
    "@context": "https://schema.org",
    "@type": "BreadcrumbList",
    "itemListElement": [
        {
            "@type": "ListItem",
            "position": 1,
            "name": "Home",
            "item": "https://options.greeks.live"
        },
        {
            "@type": "ListItem",
            "position": 2,
            "name": "Question",
            "item": "https://options.greeks.live/question/"
        },
        {
            "@type": "ListItem",
            "position": 3,
            "name": "What Is the Difference in Close out Valuation between the 1992 and 2002 Isda Agreements?",
            "item": "https://options.greeks.live/question/what-is-the-difference-in-close-out-valuation-between-the-1992-and-2002-isda-agreements/"
        }
    ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "Organization",
    "@id": "https://greeks.live/#organization",
    "name": "Greeks.Live",
    "url": "https://greeks.live/",
    "description": "Greeks.live is the definitive toolkit for the professional options trader, dedicated to empowering our users with institutional-grade data, advanced analytics, and a comprehensive suite of trading tools designed to provide a decisive edge in the market. Every article and guide published under the Greeks.live name is a product of our deep commitment to data-driven analysis and our mission to support the global trading community.",
    "email": "support@greeks.live",
    "logo": {
        "@type": "ImageObject",
        "url": "https://options.greeks.live/wp-content/uploads/2025/07/Greeks.Live-Logo-Icon.svg"
    },
    "hasPart": [
        {
            "@type": "WebSite",
            "name": "About Us",
            "url": "https://about.greeks.live"
        },
        {
            "@type": "WebSite",
            "name": "App Download Page",
            "url": "https://about.greeks.live/#/download/basic_trade"
        },
        {
            "@type": "WebSite",
            "name": "Newcomers' Guide",
            "url": "https://twisty-sign-c8b.notion.site/Guide-for-Greeks-live-X-Deribit-Newbies-5a08a3052822427d800af6eaf3704c8d"
        },
        {
            "@type": "WebSite",
            "name": "Knowledge Base",
            "url": "https://linktr.ee/greeks.live"
        },
        {
            "@type": "WebSite",
            "name": "Option Terminology",
            "url": "https://greekslive.notion.site/88dfc00e7c584d4d8969b6302a79a12f?pvs=4"
        },
        {
            "@type": "WebSite",
            "name": "Terms of Service",
            "url": "https://greeks.live/#/tos"
        },
        {
            "@type": "WebSite",
            "name": "Disclaimer",
            "url": "https://greeks.live/#/disclaimer"
        }
    ],
    "sameAs": [
        "https://x.com/greekslive",
        "https://youtube.com/@greeks_live?si=-KjT0Lkw4WUCI0tD",
        "https://t.me/greekslive_notifications",
        "https://t.me/greekslive",
        "https://pinterest.com/greekslive/"
    ],
    "makesOffer": [
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "RFQ Platform",
                "url": "https://rfq.greeks.live",
                "description": "Execute institutional-grade block trades for crypto options and futures. This platform provides deep, over-the-counter (OTC) liquidity via a professional Request for Quote system.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Lending Tools",
                "url": "https://lend.greeks.live",
                "description": "Manage crypto lending and borrowing activities to earn yield or secure loans. This suite of tools helps users analyze interest rates and manage collateralized debt positions.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Data Lab",
                "url": "https://greeks.live/#/deribit/tools/datalab/BTC",
                "description": "Analyze historical and real-time options data with advanced metrics. This tool is designed for backtesting strategies and identifying market trends through comprehensive data visualization.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Profit & Loss Analysis (PnL)",
                "url": "https://greeks.live/#/deribit/tools/pnl_analysis",
                "description": "Track and analyze the Profit and Loss (PnL) of your options portfolio. This tool provides detailed performance metrics to help traders evaluate and refine their strategies.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Position Visualization",
                "url": "https://greeks.live/#/deribit/tools/pv/BTC",
                "description": "Visualize complex options positions and their corresponding risk profiles. This tool generates payoff diagrams to help traders intuitively understand potential profit, loss, and exposure.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Options Calculator",
                "url": "https://greeks.live/#/deribit/tools/calculator",
                "description": "Calculate the theoretical price and risk parameters ('the Greeks') of crypto options. An essential tool for pricing new trades and analyzing the sensitivity of existing positions.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Greeks.live Main Platform",
                "url": "https://greeks.live/",
                "description": "The central hub for the Greeks.live suite of professional cryptocurrency options and derivatives trading tools. Access analytics, manage positions, and explore the ecosystem.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Community Forum",
                "url": "https://t.greeks.live",
                "description": "Join the official Greeks.live community. Connect with other traders, share insights, and receive the latest updates directly from the team.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Greeks.live for Deribit",
                "url": "http://deribit.greeks.live",
                "description": "A dedicated interface for trading on the Deribit exchange. This platform leverages Greeks.live's advanced analytics and tools specifically for users of Deribit's options and futures markets.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "Greeks.live for OKX",
                "url": "http://okx.greeks.live",
                "description": "A dedicated interface for trading on the OKX exchange. This platform integrates Greeks.live's powerful analytics with the OKX marketplace, focusing on its options and derivatives products.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "GLVS.AI Trading Platform",
                "url": "https://www.glvs.ai/",
                "description": "An AI-powered platform for automated crypto options trading. Leverage advanced algorithms and data-driven signals to develop and deploy sophisticated, hands-free trading strategies.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        },
        {
            "@type": "Offer",
            "itemOffered": {
                "@type": "Service",
                "name": "API Testnet & Sandbox",
                "url": "https://test.greeks.live",
                "description": "A dedicated testnet environment for developers to test their API integrations and automated trading strategies. This sandbox allows for full functionality testing without risking real funds.",
                "provider": {
                    "@id": "https://greeks.live/#organization"
                }
            }
        }
    ],
    "subOrganization": [
        {
            "@type": "Organization",
            "name": "GreeksLive HK Co., Limited",
            "email": "support@greeks.live",
            "telephone": "+852-56418949",
            "address": {
                "@type": "PostalAddress",
                "streetAddress": "Unit 11, 27/F, K. Wah Centre, 191 Java Road",
                "addressLocality": "Hong Kong",
                "addressRegion": "North Point",
                "addressCountry": "CN",
                "postalCode": "0000"
            },
            "geo": {
                "@type": "GeoCoordinates",
                "latitude": "22.2932357",
                "longitude": "114.2022026"
            },
            "image": "https://options.greeks.live/wp-content/uploads/2025/08/Wah-Centre-Hong-Kong.jpg"
        }
    ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "Article",
    "mainEntityOfPage": {
        "@type": "WebPage",
        "@id": "https://options.greeks.live/question/what-is-the-difference-in-close-out-valuation-between-the-1992-and-2002-isda-agreements/"
    },
    "headline": "What Is the Difference in Close out Valuation between the 1992 and 2002 Isda Agreements? \u25b4 Question",
    "description": "The 2002 ISDA Agreement replaces the 1992's rigid/subjective valuation with a single, objectively reasonable standard for close-outs. \u25b4 Question",
    "url": "https://options.greeks.live/question/what-is-the-difference-in-close-out-valuation-between-the-1992-and-2002-isda-agreements/",
    "datePublished": "2025-08-12T19:10:29+00:00",
    "dateModified": "2025-08-12T19:10:31+00:00",
    "articleSection": [
        "Question"
    ],
    "author": {
        "@id": "https://greeks.live/#organization"
    },
    "publisher": {
        "@id": "https://greeks.live/#organization"
    },
    "image": {
        "@type": "ImageObject",
        "url": "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",
        "caption": "This close-up visualizes the intricate market microstructure underpinning institutional digital asset derivatives trading. Intersecting transparent and opaque elements signify dynamic price discovery and multi-leg spread execution within advanced RFQ protocols, managed by a robust Prime RFQ. Transparent components represent latent liquidity and capital efficiency, while the precise central pivot underscores atomic settlement and best execution. Shadows hint at dark liquidity or the necessity for advanced pre-trade analytics to mitigate information leakage and slippage in high-frequency trading environments, ensuring optimal alpha generation."
    },
    "keywords": [
        "1992 ISDA",
        "2002 ISDA",
        "2002 ISDA Master Agreement",
        "Close-Out Amount",
        "Close-Out Netting",
        "Commercially Reasonable",
        "Counterparty Risk",
        "Credit Risk",
        "Derivatives Valuation",
        "Financial Law",
        "Good Faith",
        "ISDA Master Agreement",
        "Loss Method",
        "Market Data",
        "Market Quotation",
        "Swaps",
        "Value Clean",
        "Value Dirty"
    ]
}
```

```json
{
    "@context": "https://schema.org",
    "@type": "WebSite",
    "url": "https://options.greeks.live/",
    "potentialAction": {
        "@type": "SearchAction",
        "target": "https://options.greeks.live/?s=search_term_string",
        "query-input": "required name=search_term_string"
    }
}
```


---

**Original URL:** https://options.greeks.live/question/what-is-the-difference-in-close-out-valuation-between-the-1992-and-2002-isda-agreements/
