Does anybody know what notional means?
I’m not sure how it’s calculated for other derivatives, but the notional value of a call is the value of the stock (at current marke price) which the purchaser of the call has a right to buy at a fixed price, while the notional value of an interest rate exchange is the underlying principal amount.
Quite frankly, it seems adding up the notional values of derivatives is quite meaningless, and the huge sum doesn’t forebode anything. It’s rather like adding up the maximum possible payouts of all outstanding insurance policies of all types, then running around worrying that the sky is falling because the insurance companies don’t have anywhere near that amount in assets.