What is reset?
This is when a reference rate is determined and recorded by two parties so they can work out the settlement value of a payment schedule. It's sometimes also known as fixing.
Where have you heard about reset?
It's mainly used in interest rate swaps. In this type of agreement, the parties involved will normally agree on a source for their reference rate, then look up the value on a set date so they can calculate a payment.
What you need to know about reset.
It can sometimes change the value of a financial instrument and it might be difficult to include when pricing these instruments using financial software. Apart from interest rate swaps, the other common use for the reset process is in Asian options and overnight indexed swaps. For Asian options, the payoff depends on the average price of the underlying asset over a set period of time, while in overnight index swaps the periodic payment might be made based on an average of overnight interest rates.
Find out more about reset.
Reset is a generic term often used across financial markets. Find out more with our guide.