Financial Derivatives

Gains and losses on the Company's derivative contracts for the three month periods ended March 31, 2016 and 2015 are summarized in the tables below:

Three Month Period Ended March 31, 2016:



		Three Month Period Ended March 31, 2016
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)⁽¹⁾			Change in Net Unrealized Gain/(Loss)⁽²⁾
(In thousands)
Financial derivatives–assets
Credit default swaps on asset-backed securities	Credit	$	91		$	(105	)
Credit default swaps on asset-backed indices	Credit	2,745			(839		)
Credit default swaps on corporate bond indices	Credit	(1,957		)	3,239
Credit default swaps on corporate bonds	Credit	477			5
Total return swaps	Equity Market/Credit	(877		)	989
Interest rate swaps	Interest Rates	12,725			7,169
Futures	Interest Rates/Equity Market	(63		)	99
Forwards	Currency	(307		)	(1,138		)
Warrants	Credit	(50		)	—
Mortgage loan purchase commitments	Interest Rates	—			43
Options	Credit/ Interest Rates	3,677			350
		16,461			9,812
Financial derivatives–liabilities
Credit default swaps on asset-backed securities	Credit	(16		)	1
Credit default swaps on asset-backed indices	Credit	(159		)	(92		)
Credit default swaps on corporate bond indices	Credit	(5,143		)	(13,636		)
Credit default swaps on corporate bonds	Credit	(505		)	118
Total return swaps	Equity Market/Credit	(4,789		)	3,858
Interest rate swaps	Interest Rates	(16,509		)	(13,112		)
Futures	Interest Rates/Equity Market	(471		)	28
Forwards	Currency	(25		)	(1,909		)
Options	Credit/ Interest Rates/Equity Market	798			(5,378		)
		(26,819		)	(30,122		)
Total		$	(10,358	)	$	(20,310	)


(1)	Includes gain/(loss) on foreign currency transactions on derivatives in the amount of $28 thousand, for the three month period ended March 31, 2016, which is included on the Consolidated Statement of Operations in Realized gain (loss) on foreign currency transactions.


(2)	Includes foreign currency translation on derivatives in the amount of $1.6 million, for the three month period ended March 31, 2016, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.

Three Month Period Ended March 31, 2015:



		Three Month Period Ended March 31, 2015
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)⁽¹⁾
(In thousands)
Financial derivatives–assets
Credit default swaps on asset-backed securities	Credit	$	401		$	(355	)
Credit default swaps on asset-backed indices	Credit	226			(1,252		)
Credit default swaps on corporate bond indices	Credit	(3,014		)	828
Total return swaps	Equity Market/Credit	1,810			110
Interest rate swaps	Interest Rates	19,460			(6,987		)
Futures	Interest Rates	2,398			824
Forwards	Currency	7,285			(884		)
Options	Credit/ Interest Rates	(3,260		)	560
		25,306			(7,156		)
Financial derivatives–liabilities
Credit default swaps on asset-backed securities	Credit	(19		)	—
Credit default swaps on asset-backed indices	Credit	145			206
Credit default swaps on corporate bond indices	Credit	2,124			(2,656		)
Credit default swaps on corporate bonds	Credit	(668		)	485
Total return swaps	Equity Market/Credit	(458		)	(304		)
Interest rate swaps	Interest Rates	(25,197		)	4,321
Futures	Interest Rates/Equity Market	(32		)	(411		)
Forwards	Currency	(1,489		)	(581		)
Options	Credit/ Interest Rates	250			948
		(25,344		)	2,008
Total		$	(38	)	$	(5,148	)


(1)	Includes foreign currency translation on derivatives in the amount of $1.0 million which is shown on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.

The tables below detail the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the three month period ended March 31, 2016 and the year ended December 31, 2015:



Derivative Type	Three Month Period Ended March 31, 2016		Year Ended December 31, 2015
	(In thousands)
Interest rate swaps	$	2,258,733	$	2,463,892
Credit default swaps	2,146,231		1,080,772
Total return swaps	89,435		112,641
Futures	634,975		880,682
Options	900,488		865,600
Forwards	96,351		107,448
Warrants	1,555		1,554
Mortgage loan purchase commitments	10,043		2,093

From time to time the Company enters into credit derivative contracts for which the Company sells credit protection ("written credit derivatives"). As of March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015, are summarized below:



Credit Derivatives	Amount at March 31, 2016			Amount at December 31, 2015
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	138,402		$	135,443
Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	(460	)	$	(369	)
Notional Amount of Written Credit Derivatives ⁽²⁾	$	(818,611	)	$	(799,750	)
Notional Amount of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	17,218		$	17,322


(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 March 31, 2016, implied credit spreads on such contracts ranged between 18.5 and 3,667.1 basis points. For the Company's written credit derivatives that were outstanding at December 31, 2015, implied credit spreads on such contracts ranged between 19.5 and 4,628.7 basis points. Total net up-front payments received relating to written credit derivatives outstanding at March 31, 2016 and December 31, 2015 were $136.0 million and $137.8 million, respectively.