Calculation Agent

A calculation agent is almost like a referee or mediator who has the important job of determining the value of a derivative. And what the heck is a derivative? It's basically any kind of security that relies on the value of an underlying asset such as a stock, bond, commodity or foreign currency. It could be in the form of a futures contract, interest rate swap or call/put options.

But getting back to the calculation agent, they have to figure out who owes how much and to whom. Just like in a real estate closing, each party can have their own calculation agent or both use the same one. The agent might determine how the derivative will be valued, the exchange rate if it involves foreign currency or the current market value.

You will most likely never come into contact with a calculation agent for simple derivative trading at publicly available market prices. But for more complex deals, the calculation agent (who could also be the seller or a broker) plays a key role. And if one of the parties disagrees with the value the agent comes up with, they can take their case to a "disinterested third party" to make the final decision. Agents are supposed to avoid any conflicts of interest, which could be a problem if they are also the seller.