Derivative Instruments and Hedging Activities

The Company enters into derivative instruments in connection with its risk management activities. These derivative instruments may include interest rate swaps, swaptions, futures and options on futures. The Company may also purchase or sell TBAs, purchase options on U.S. Treasury futures or invest in other types of mortgage derivative securities. The Company's derivative instruments are currently comprised of interest rate swaps, which are designated as trading instruments.

The following table presents the fair value of derivative instruments and their location in our condensed consolidated balance sheets at September 30, 2018 and December 31, 2017, respectively (dollar amounts in thousands):



Type of Derivative Instrument	Balance Sheet Location	September 30, 2018		December 31, 2017
Interest rate swaps ⁽¹⁾	Derivative assets	$	8,760	$	10,101


⁽¹⁾	Variation margin payable of $8.5 million and variation margin receivable of $9.3 million is included as an adjustment to the carrying value of the derivative assets at September 30, 2018 and December 31, 2017, respectively.

The tables below summarize the volume activity of derivative instruments for the nine months ended September 30, 2018 and 2017, respectively (dollar amounts in thousands):



	Notional Amount For the Nine Months Ended September 30, 2018
Type of Derivative Instrument	December 31, 2017		Additions		Settlement, Expiration or Exercise		September 30, 2018
Interest rate swaps	$	345,500	$	50,000	$	—	$	395,500



	Notional Amount For the Nine Months Ended September 30, 2017
Type of Derivative Instrument	December 31, 2016			Additions		Settlement, Expiration or Exercise			September 30, 2017
TBA securities ⁽¹⁾	$	149,000		$	1,466,000	$	(1,440,000	)	$	175,000
U.S. Treasury futures	17,100			123,900		(135,500		)	5,500
Interest rate swap futures	(151,700		)	413,800		(349,000		)	(86,900		)
Eurodollar futures	(2,575,000		)	5,989,000		(5,054,000		)	(1,640,000		)
Options on U.S. Treasury futures	—			5,000		(5,000		)	—
Swaptions	154,000			—		—			154,000
Interest rate swaps	15,000			—		—			15,000


⁽¹⁾	Open TBA purchases and sales involving the same counterparty, same underlying deliverable and the same settlement date are reflected in our condensed consolidated financial statements on a net basis.

The following table presents the components of realized and unrealized gains and losses related to our derivative instruments included in other income category in our condensed consolidated statements of operations for the three and nine months ended September 30, 2018 and 2017 (dollar amounts in thousands):



	Three Months Ended September 30,
	2018				2017
	Realized Gains (Losses)		Unrealized Gains (Losses)		Realized Gains (Losses)			Unrealized Gains (Losses)
TBA securities	$	—	$	—	$	1,470		$	(265	)
Eurodollar futures	—		—		62			39
Interest rate swaps	—		2,275		—			36
Swaptions	—		—		—			171
U.S. Treasury and interest rate swap futures and options	—		—		(583		)	505
Total	$	—	$	2,275	$	949		$	486

	Nine Months Ended September 30,
	2018				2017
	Realized Gains (Losses)		Unrealized Gains (Losses)		Realized Gains (Losses)			Unrealized Gains (Losses)
TBA securities	$	—	$	—	$	3,285		$	(1,080	)
Eurodollar futures	—		—		849			(886		)
Interest rate swaps	—		16,379		—			110
Swaptions	—		—		—			239
U.S. Treasury and interest rate swap futures and options	—		—		(999		)	699
Total	$	—	$	16,379	$	3,135		$	(918	)

The following table presents information about our interest rate swaps whereby we receive floating rate payments in exchange for fixed rate payments as of September 30, 2018 and December 31, 2017, respectively (dollar amounts in thousands):



	September 30, 2018						December 31, 2017
Swap Maturities	Notional Amount		Weighted Average Fixed Interest Rate		Weighted Average Variable Interest Rate		Notional Amount		Weighted Average Fixed Interest Rate		Weighted Average Variable Interest Rate
2024	$	98,000	2.18	%	2.34	%	$	98,000	2.18	%	1.36	%
2027	247,500		2.39	%	2.34	%	247,500		2.39	%	1.39	%
2028	50,000		3.13	%	2.31	%	—		—		—
Total	$	395,500	2.43	%	2.34	%	$	345,500	2.33	%	1.38	%

The use of derivatives exposes the Company to counterparty credit risks in the event of a default by a counterparty. If a counterparty defaults under the applicable derivative agreement, the Company may be unable to collect payments to which it is entitled under its derivative agreements and may have difficulty collecting the assets it pledged as collateral against such derivatives. The Company has in place with all counterparties bi-lateral margin agreements requiring a party to post collateral to the Company for any valuation deficit. This arrangement is intended to limit the Company’s exposure to losses in the event of a counterparty default. Currently, all of the Company's interest rate swaps outstanding are cleared through CME Group Inc. ("CME Clearing") which is the parent company of the Chicago Mercantile Exchange Inc. CME Clearing serves as the counterparty to every cleared transaction, becoming the buyer to each seller and the seller to each buyer, limiting the credit risk by guaranteeing the financial performance of both parties and netting down exposures.