In derivative trading, there is a kind of contract known as a "swap." Here's an oversimplified definition: these deals involve people (well, usually they involve financial institutions, but banks are people too, right?) trading something that they eventually plan on trading back. Essentially, they are trading use of a thing, but not the thing itself.
Think of it like mutual borrowing. Saying to a friend "hey, let me borrow your car today and I'll let you watch a movie on my high-tech home theater system." This is a swap. You and your friend get use of each other's stuff for limited period of time.
Don't feel bad if that all hasn't sunk in. The derivatives market itself can get somewhat confusing, and swaps possibly represent the most confusing part. But for defining this term, the key for a swap is that there is a time limit. An expiration.
But sometimes these swaps get ended earlier than expected. Say something comes up that interrupts operation of one of the items in a swap, like a bankruptcy or a merger. Because of the early termination, one side owes the other side something as compensation.
In the example we discussed, you borrowed your friend's car, as you guys agreed, but while driving around you get a call: "hey, the power went out. I can't watch the movie." You got to use the car, but your friend didn't get their movie. You need to come up with something else to give them.
The Agreement Value Method is one of the ways to figure out what's owed when a swap ends early. (And an obviously dangerous one, because when two parties just agree on some value of an esoteric property, there is a kind of confusion-liability embedded in that agreement, as it's likely that, down the line, somebody will feel screwed.) Specifically, the International Swaps and Derivatives Association has three approved methods for figuring out termination payments when a swap ends prematurely. The Agreement Value Method is the most common one. (The others, by the way, consist of the Indemnification Method and the Formula Method, but we won't go into those here.)
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Finance: What is Assessed Value?6 Views
finance a la shmoop what is assessed value well here's ass value, here's asset value.. [Ass eating grass and a house for sale]
that is if you own a home, there really two prices attached to it..
The price you pay for it, or can sell it for, that's the market value of your asset, your
home, and what your home is officially worth according to the government, well that's the assessed value..
the government assessed that your home was in fact worth $412,932
why two sets of house prices well to
keep things you know interesting and to get you to pay your taxes your state [Uncle Sam walks in on man in office]
charges you property tax just for the privilege of living in the state they
charge more for the guy living in the McMansion than they do for the guy
living in the one bedroom bungalow usually but they still need to figure [Large mansion and small bungalow]
out who pays what each state has a little different taxation system and some
states use a formula based on what you paid for the house or what your house is
accessed or perceived value is in California for example you pony up one
point two five percent of the purchase price the price you paid for your home
within some subsequent adjustments for inflation over time that's the rate pay [Inflation chart over time]
based on the purchase price the market price in other states the value of the
house carries an assessed value that is an assessor takes a look at your home
every so often and comes up with a dollar figure of what they guess the [Assessor person beside the assessed property]
house is well officially worth for tax purposes usually that number is lower
than what you actually paid for your house or what it would get if you would
sell it in the marketplace you know if you whine loud enough the assessor may
make an adjustment so that for at least that year your tax bill can come down [Man celebrates with assessor]
yeah whining about taxes it can have its benefits people and all that whining
yeah it'll make you feel like one of these guys
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