DEFINITION of EDSP Exchange delivery settlement price
EDSP the exchange delivery settlement price is the settlement price of derivative contracts on an exchange.
EDSP is delivery settlement price is the amount of cash according to the final agreement.
WHAT IT IS IN ESSENCE
Usually, this is based on an index of the intraday prices or an average of the opening and closing price for the relevant single day.
EDSP represents the physical delivery costs of an underlying financial instrument or options contract. Often based on the average price of trades over a set time period.
The exchange delivery settlement price is the amount of cash in the final agreement.
The methods of calculating EDSP is different from exchange to exchange. But it usually involves averaging the prices of trades made over a certain period of time.
It is useful to calculate the difference to be settled between buyers and sellers of a derivative contract. This is the price present at the expiry of a futures or options contract to determine how much is necessary to pay.
HOW TO USE
The EDSP is not the implementation in markets that exchange physical assets, for example, the commodities market.
The price at which commodities exchange hands on delivery is the original price which you trade.
However, the EDSP is still useful if you want to settle the price of an underlying derivative contract on the commodities market. This is because these types of contracts are not quite for physical delivery.
In fact, a vast majority of crude oil contracts on NYMEX are in cash.
Whether the contract is for a financial or physical asset does not affect the need for exchange delivery settlement prices.
Exchanges need to use an EDSP to calculate the difference between the traded price and price at expiry.
The EDSP is usually set on the last trading day of a contract. And payment of the difference is usually a day or two thereafter.
In the case of a futures contract, the EDSP will be used to determine the last price before expiry.