Financial Derivatives

Gains and losses on the Company's derivative contracts for the three and nine month periods ended September 30, 2015 and 2014 are summarized in the tables below:

Three and Nine Month Periods Ended September 30, 2015:



		Three Month Period Ended September 30, 2015						Nine Month Period Ended September 30, 2015
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)⁽¹⁾			Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)⁽¹⁾
(In thousands)
Financial derivatives–assets
Credit default swaps on asset-backed securities	Credit	$	446		$	(310	)	$	(717	)	$	392
Credit default swaps on asset-backed indices	Credit	(154		)	526			(544		)	(138		)
Credit default swaps on corporate bond indices	Credit	(1,426		)	(763		)	(2,704		)	(2,208		)
Credit default swaps on corporate bonds	Credit	(4		)	1			(4		)	1
Total return swaps	Equity Market/Credit	536			(67		)	4,602			173
Interest rate swaps	Interest Rates	6,808			9,641			33,789			(5,302		)
Futures	Interest Rates/Equity Market	383			(3		)	3,635			40
Forwards	Currency	646			(217		)	8,166			91
Mortgage loan purchase commitments	Interest Rates	—			11			—			11
Other	Credit/ Interest Rates	4,715			300			4,627			1,589
		11,950			9,119			50,850			(5,351		)
Financial derivatives–liabilities
Credit default swaps on asset-backed securities	Credit	(18		)	18			(60		)	(23		)
Credit default swaps on asset-backed indices	Credit	(65		)	(692		)	52			(484		)
Credit default swaps on corporate bond indices	Credit	(2,958		)	5,731			(3,441		)	7,847
Credit default swaps on corporate bonds	Credit	40			(55		)	(899		)	722
Total return swaps	Equity Market/Credit	3,103			(1,137		)	(3,527		)	(3,035		)
Interest rate swaps⁽²⁾	Interest Rates	(6,806		)	(17,226		)	(42,734		)	3,515
Futures	Interest Rates/Equity Market	(1,426		)	(592		)	(2,210		)	(1,212		)
Forwards	Currency	(231		)	64			(6,276		)	(4		)
Other	Credit/ Interest Rates/Equity Market	(1,231		)	1,321			(3,448		)	2,978
		(9,592		)	(12,568		)	(62,543		)	10,304
Total		$	2,358		$	(3,449	)	$	(11,693	)	$	4,953


(1)	Includes foreign currency translation on derivatives in the amount of $58 thousand and $(80) thousand, for the three and nine month periods ended September 30, 2015, respectively, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.


(2)	Includes a $1.5 million reimbursement from a third party for the nine month period ended September 30, 2015.

Three and Nine Month Periods Ended September 30, 2014:



		Three Month Period Ended September 30, 2014						Nine Month Period Ended September 30, 2014
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)			Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)
(In thousands)
Financial derivatives–assets
Credit default swaps on asset-backed securities	Credit	$	(2,860	)	$	3,004		$	(2,135	)	$	2,379
Credit default swaps on asset-backed indices	Credit	(2,145		)	2,327			(4,261		)	2,367
Credit default swaps on corporate bond indices	Credit	(1,459		)	414			653			(361		)
Total return swaps	Equity Market	1,079			4			8,846			24
Interest rate swaps	Interest Rates	1,953			191			1,904			(3,940		)
Futures	Interest Rates	299			(2,023		)	1,266			550
Forwards	Currency	2,218			345			2,722			396
Other	Credit/ Interest Rates	(60		)	(97		)	48			504
		(975		)	4,165			9,043			1,919
Financial derivatives–liabilities
Credit default swaps on asset-backed securities	Credit	(20		)	(28		)	(59		)	(28		)
Credit default swaps on asset-backed indices	Credit	166			(55		)	2,608			(1,180		)
Credit default swaps on corporate bond indices	Credit	(1,878		)	5,034			(7,639		)	8,948
Credit default swaps on corporate bonds	Credit	369			(395		)	510			(620		)
Total return swaps	Equity Market	(4,067		)	3			(5,041		)	27
Interest rate swaps	Interest Rates	(2,218		)	174			(6,075		)	(7,539		)
Futures	Interest Rates	39			2,650			14			2,315
Forwards	Currency	(997		)	314			(1,926		)	38
Other	Credit/ Interest Rates/Equity Market	104			194			(510		)	(35		)
		(8,502		)	7,891			(18,118		)	1,926
Total		$	(9,477	)	$	12,056		$	(9,075	)	$	3,845

The tables below detail the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the nine month period ended September 30, 2015 and the year ended December 31, 2014:



Derivative Type	Nine Month Period Ended September 30, 2015		Year Ended December 31, 2014
	(In thousands)
Interest rate swaps	$	2,585,387	$	2,227,315
Credit default swaps	893,705		552,411
Total return swaps	1,228,173		55,108
Futures	978,986		738,830
Options	820,848		926,369
Forwards	94,611		42,143
Warrants	1,554		120
Mortgage loan purchase commitments	840		—

From time to time the Company enters into credit derivative contracts for which the Company sells credit protection ("written credit derivatives"). As of September 30, 2015 and December 31, 2014, all of the Company's open written credit derivatives were credit default swaps on either mortgage/asset-backed indices (ABX and CMBX indices) or corporate bond indices (CDX), collectively referred to as credit indices, or on individual corporate bonds, for which the Company receives periodic payments at fixed rates from credit protection buyers, and is obligated to make payments to the credit protection buyer upon the occurrence of a "credit event" with respect to underlying reference assets.

Written credit derivatives held by the Company at September 30, 2015 and December 31, 2014, are summarized below:



Credit Derivatives	Amount at September 30, 2015			Amount at December 31, 2014
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	30,099		$	27,741
Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	(1,094	)	$	(3,287	)
Notional Amount of Written Credit Derivatives ⁽²⁾	$	(424,203	)	$	(341,014	)
Notional Amount of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	33,354		$	54,874


(1)	Offsetting transactions with third parties include purchased credit derivatives which have the same reference obligation.

(2)

The notional value is the maximum amount that a seller of credit protection would be obligated to pay, and a buyer of credit protection would receive upon occurrence of a "credit event." Movements in the value of credit default swap transactions may require the Company or the counterparty to post or receive collateral. Amounts due or owed under credit derivative contracts with an International Swaps and Derivatives Association, or "ISDA," counterparty may be offset against amounts due or owed on other credit derivative contracts with the same ISDA counterparty. As a result, the notional amount of written credit derivatives involving a particular underlying reference asset or index has been reduced (but not below zero) by the notional amount of any contracts where the Company has purchased credit protection on the same reference asset or index with the same ISDA counterparty.

A credit default swap on a credit index or a corporate bond typically terminates at the stated maturity date in the case of corporate indices or bonds, or, in the case of ABX and CMBX indices, the date that all of the reference assets underlying the index are paid off in full, retired, or otherwise cease to exist. Implied credit spreads may be used to determine the market value of such contracts and are reflective of the cost of buying/selling credit protection. Higher spreads would indicate a greater likelihood that a seller will be obligated to perform (i.e., make payment) under the contract. In situations where the credit quality of the underlying reference assets has deteriorated, the percentage of notional values paid up front ("points up front") is frequently used as an indication of credit risk. Credit protection sellers entering the market would expect to be paid points up front corresponding to the approximate fair value of the contract. For the Company's written credit derivatives that were outstanding at both September 30, 2015 and December 31, 2014, periodic payment rates ranged between 15 and 500 basis points. Total net up-front payments received relating to written credit derivatives outstanding at September 30, 2015 and December 31, 2014 were $33.4 million and $28.9 million, respectively.