OTC home price forward contracts will pay out the contract notional amount times the difference between an S&P/Case-Shiller Home Price Index value on the contract settlement date and the trade strike index level. The strike level is set when a trade is initiated, and typically will be set at or near the then-current forward price for the specific reference index. The payout mechanics look like this: Notional amount * (Final Index Value – Strike) The notional amount is effectively the dollar sensitivity of the trade to a 1 point change in the relevant index value; bullish (long) trades will have a positive notional amount; bearish (short) trades will have a negative notional amount. Cash Flow Examples Bullish Trade When the index at the forward (maturity) date is greater than the pre-set strike level established on the original trade date, the bullish counterparty (i.e., the forward contract “long”) will receive a payment: Bearish Trade When the index at the forward (maturity) date is less than the pre-set strike level established on the original trade date, the bearish counterparty (i.e., the forward contract “short”) will receive a payment (technically, this takes the form of a “negative payment” to the dealer/counterparty):

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