- The notional amount is used to determine the loss of principal at default, and the mark-to-market loss is used to determine the net loss so as not to double-count the mark-to-market loss already recorded in the market value of the position.
- For all instruments, the notional amount is the notional amount of the
instrument relative to which the loss of principal is determined. In the
JTD equation:
Instruments
Notional
Bond-equivalent market value
P&L
Bond
Face Value of a Bond
Market Value of bond
MV-face value
CDS
Notional of CDS
Notional of CDS |MtM value of CDS|
|MtM value of CDS|
Sold put option on a bond
Notional of Option
Strike Amount MtM Value of option
Notional
Bought call option on a bond
MtM value of option
MtM of option
