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Payal123
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Joined: 08 Jan 2009
Location: United States
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Posts: 330

Posted: 19 Aug 2009 at 22:21 \| IP Logged

Can anyone explain how is Derivatives Accounting affected by Time Value of Option Contracts & Intrinsic value?

Becker has not explained this at all. Would really appreciate if some1 could explain this concept.

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shoebhashim
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Joined: 10 Sep 2007
Location: United States
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Posts: 32

Posted: 21 Aug 2009 at 01:27 \| IP Logged

Let me try...I am not a 100% sure though but here is my two cents never the less.

Since derivative instruments (those classified as hedges) derive its value based on the value of another instrument's future value, time value concept kicks in.

Option contract is an agreement to transact under stated terms in the future, thus if the underlying to this Option Contract (derivative instrument) is a future cash flow, it would affect the Effective and Ineffective portion of the hedging instrument, thereby influencing OCI & Earnings.

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