Question

expain the Reset model with an example.

Answer 1

Reset is also known as fixing. It is a generic term used in financial market. It means determination of reference rate for calculation of settlement value of payments scheduled between two parties.

It is usually used in interest rate swaps to calculate the floating rate payments. Fixing or reset involves looking up to the reference value on agreed data, recording and then computing a payment based on agreed rates.

Example of reset model is asian option, where the underlying of the option is some kind of average and OIS type swaps where the periodic payments are done on average basis.