Financial Derivatives

Gains and losses on the Company's derivative contracts for the three month periods ended March 31, 2017 and 2016 are summarized in the tables below:

Three Month Period Ended March 31, 2017:



		Three Month Period Ended March 31, 2017
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	$	(409	)	$	968
Credit default swaps on asset-backed indices	Credit	(1,173		)	(2,122		)
Credit default swaps on corporate bond indices	Credit	(287		)	(27		)
Credit default swaps on corporate bonds	Credit	1,007			(329		)
Total return swaps	Equity Market/Credit	(753		)	139
Interest rate swaps	Interest Rates	255			159
Futures	Interest Rates	(34		)	(17		)
Forwards	Currency	(822		)	330
Warrants	Equity Market	(100		)	(6		)
Mortgage loan purchase commitments	Interest Rates	—			31
Options	Credit/ Interest Rates/Equity Market	(70		)	11
Total		$	(2,386	)	$	(863	)


(1)	Includes gain/(loss) on foreign currency transactions on derivatives in the amount of $17 thousand, 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 $(36) thousand, 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, 2016⁽¹⁾:



		Three Month Period Ended March 31, 2016
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	$	75		$	(104	)
Credit default swaps on asset-backed indices	Credit	2,586			(931		)
Credit default swaps on corporate bond indices	Credit	(7,100		)	(10,397		)
Credit default swaps on corporate bonds	Credit	(28		)	123
Total return swaps	Equity Market/Credit	(5,666		)	4,847
Interest rate swaps	Interest Rates	(3,784		)	(5,943		)
Futures	Interest Rates/Equity Market	(534		)	127
Forwards	Currency	(332		)	(3,047		)
Mortgage loan purchase commitments	Interest Rates	—			43
Warrants	Equity Market	(50		)	—
Options	Credit/ Interest Rates/Equity Market	4,475			(5,028		)
Total		$	(10,358	)	$	(20,310	)


(1)	Conformed to current period presentation.


(2)	Includes gain/(loss) on foreign currency transactions on derivatives in the amount of $28 thousand, 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 $1.6 million, which is included 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, 2017 and the year ended December 31, 2016:



Derivative Type	Three Month Period Ended March, 31, 2017		Year Ended December 31, 2016
	(In thousands)
Interest rate swaps	$	1,252,413	$	1,731,368
Credit default swaps	398,587		1,586,923
Total return swaps	29,747		113,628
Futures	74,900		371,900
Options	64,425		357,260
Forwards	70,510		80,513
Warrants	1,229		1,640
Mortgage loan purchase commitments	5,150		6,143

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, 2017 and December 31, 2016, 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, 2017 and December 31, 2016, are summarized below:



Credit Derivatives	March 31, 2017			December 31, 2016
(In thousands)
Fair Value of Written Credit Derivatives, Net	$	(1,143	)	$	(1,551	)
Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	1,861		$	4,552
Notional Value of Written Credit Derivatives ⁽²⁾	$	134,909		$	117,476
Notional Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties ⁽¹⁾	$	78,930		$	68,357


(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 March 31, 2017, implied credit spreads on such contracts ranged between 40.7 and 899.2 basis points. 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 636.6 basis points. Excluded from these spread ranges are contracts outstanding for which the individual spread is greater than 2000 basis points. The Company believes that these contracts would be quoted based on estimated points up front. The total fair value of contracts with individual implied credit spreads in excess of 2000 basis points was $(1.6) million and $(2.5) million as of March 31, 2017 and December 31, 2016, respectively. Estimated points up front on these contracts as of March 31, 2017 ranged between 47.0 and 71.7 points, and as of December 31, 2016 ranged between 45.0 and 72.6 points. Total net up-front payments (paid) or received relating to written credit derivatives outstanding at March 31, 2017 and December 31, 2016 were $(3.1) million and $(3.3) million, respectively.