Financial Derivatives

Gains and losses on the Company's derivative contracts for the years ended December 31, 2016, 2015, and 2014 are summarized in the tables below:

Year Ended December 31, 2016:



		Year Ended December 31, 2016
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)⁽¹⁾			Change in Net Unrealized Gain/(Loss)⁽²⁾
(In thousands)
Credit default swaps on asset-backed securities	Credit	$	719		$	(703	)
Credit default swaps on asset-backed indices	Credit	3,935			(3,349		)
Credit default swaps on corporate bond indices	Credit	(36,195		)	(4,044		)
Credit default swaps on corporate bonds	Credit	(14		)	712
Total return swaps	Equity Market/Credit	(12,987		)	4,427
Interest rate swaps	Interest Rates	(2,912		)	(1,983		)
Futures	Interest Rates/Equity Market	(84		)	456
Forwards	Currency	4,093			(1,580		)
Warrants	Equity Market	(50		)	6
Mortgage loan purchase commitments	Interest Rates	—			(23		)
Options	Credit/ Interest Rates/Equity Market	7,174			(413		)
Total		$	(36,321	)	$	(6,494	)


(1)	Includes gain/(loss) on foreign currency transactions on derivatives in the amount of $0.3 million, 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 $1.1 million, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.

Year Ended December 31, 2015⁽¹⁾:



		Year Ended December 31, 2015
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)⁽²⁾			Change in Net Unrealized Gain/(Loss)⁽³⁾
(In thousands)
Credit default swaps on asset-backed securities	Credit	$	(3,066	)	$	2,133
Credit default swaps on asset-backed indices	Credit	(714		)	(285		)
Credit default swaps on corporate bond indices	Credit	(8,059		)	7,503
Credit default swaps on corporate bonds	Credit	(1,005		)	694
Total return swaps	Equity Market/Credit	1,838			(4,564		)
Interest rate swaps⁽⁴⁾	Interest Rates	(9,603		)	1,983
Futures	Interest Rates/Equity Market	708			(676		)
Forwards	Currency	4,738			377
Mortgage loan purchase commitments	Interest Rates	—			(8		)
Options	Credit/ Interest Rates/Equity Market	5,048			1,623
Total		$	(10,115	)	$	8,780


(1)	Conformed to current period presentation.


(2)	Includes foreign currency translation on derivatives in the amount of $0.2 million, which is included on the Consolidated Statement of Operations in Realized gain (loss) on foreign currency transactions.


(3)	Includes foreign currency translation on derivatives in the amount of $(1.1) million, which is included on the Consolidated Statement of Operations in Change in net unrealized gain (loss) on foreign currency translation.


(4)	Includes a $1.5 million reimbursement from a third party.

Year Ended December 31, 2014⁽¹⁾:



		Year Ended December 31, 2014
Derivative Type	Primary Risk Exposure	Net Realized Gain/(Loss)			Change in Net Unrealized Gain/(Loss)
(In thousands)
Credit default swaps on asset-backed securities	Credit	$	(4,674	)	$	4,658
Credit default swaps on asset-backed indices	Credit	(1,551		)	316
Credit default swaps on corporate bond indices	Credit	(4,304		)	4,337
Credit default swaps on corporate bonds	Credit	270			(782		)
Total return swaps	Equity Market	7,304			49
Interest rate swaps	Interest Rates	(13,329		)	(19,217		)
Futures	Interest Rates/Equity Market	4,589			2,552
Forwards	Currency	1,630			786
Options	Credit/ Interest Rates/Equity Market	(1,146		)	(971		)
Total		$	(11,211	)	$	(8,272	)


(1)	Conformed to current period presentation.

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



Derivative Type	Year Ended December 31, 2016		Year Ended December 31, 2015
	(In thousands)
Interest rate swaps	$	1,731,368	$	2,463,892
Credit default swaps	1,586,923		1,080,772
Total return swaps	113,628		112,641
Futures	371,900		880,682
Options	357,260		865,600
Forwards	80,513		107,448
Warrants	1,640		1,554
Mortgage loan purchase commitments	6,143		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 December 31, 2016 and 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 December 31, 2016 and 2015, are summarized below:



Credit Derivatives	December 31, 2016			December 31, 2015
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	(1,551	)	$	135,443
Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	4,552		$	(369	)
Notional Value of Written Credit Derivatives ⁽²⁾	$	117,476		$	(799,750	)
Notional Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	68,357		$	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 value of written credit derivatives involving a particular underlying reference asset or index has been reduced (but not below zero) by the notional value 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 that would be paid up front to enter into a new such contract ("points up front") is frequently used as an indication of credit risk. Credit protection sellers entering the market in such situations 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 December 31, 2016, implied credit spreads on such contracts ranged between 68.5 and 14,344.6 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 (paid) or received relating to written credit derivatives outstanding at December 31, 2016 and 2015 were $(3.3) million and $137.8 million, respectively.