I am trying to understand Notional Value for derivatives. Specifically for Options, Futures, Forwards and Swaps. Are these correct notional calculations?Option: the number of contracts * mulitplier * strike priceFutures: : no. of contracts * multiplier * spot priceForward: what is the notional value of a forward? Is it: quantity * spot priceSwap: underlying value that the Swap is based on.many thanks

correct, except for options it would make more sense to use spot price instead of strike price.a fairly common derivative is the zero strike call, which acts almost exactly like stock, for example.

the reason I thought it must be strike price is because, by ignoring strike price and using the underlying: would make all strikes have the same notional, for a given quantity

charlieo,the reason you use the spot price is because if the option is exercised that is the value of what needs to be delivered. You could also calculate a delta adjusted notional value, wich would be multiplier*spot*delta. It kinds of give you an idea of what's the maximum amount of stock that might be held by hedgers (You implicitly assume that only those one side (either buyers or sellers) would delta hedge)Regards,G

seems to me like the definition used for notional is different for different asset classes, e.g. notional=number of options x spot for equity but notional = number of options x strike for FX. Can anyone confirm ?

Yeah actually the value of what needs to be delivered should use the Strike, shouldn't it?

See i think its like this say i want to buy 1m calls at strike 1.14 EUR/USDimplicitly this would mean as if I would be buying 1m EUR at 1m * 1.14 USD and the premium that i would pay would pay would be in USD. (this is for FX option)Say now i want to buy a 1m outright forward , in this case u have a contract rate which wud in general be equal to the FXFP point for the corresponding date hence u wud be buying 1m EUR by paying implicitly 1m * contract rate USD

what do you mean by "multiplier"? ...#shares by contract (eg. 100)?

notionial is a term which represents a multplier in the payout of a derivative.... it commands such mysticism because of the number of zeros associated with it, but it is just a leverage factor in a payout formula

My reasoning behind using strike instead of spot: Imagine an asset manager that is long $10m of an index. He wishes to hedge the downside of this completely. If he wants to hedge this at the money, the number of options needed is $10m/spot, so the notional of the hedge is $10m. If however, he wants hedge this, let's say, at the 90-strike, the number of options he needs is $10m/(90_strike). In this case the notional would still be the same if we define notional as number of options * strike, i.e. the notional is $10m. If however, we use the definition notional = number of options * spot, his notional would be greater than $10m, i.e. $10m/(90_strike) * spot > $10m.So, to summarise, the notional to hedge $10m varies with strike if we use the spot definition.With the strike definition it is constant at $10m, so I would have thought the strike definition makes more sense, but that does not seem to be the standard in equity markets.

And no sign change (* -1) for notional of puts versus calls?