10. Reference Value and Market Pricing

Cerbero distinguishes between Reference Value and Market Price. This distinction is necessary because the system can publish facility metrics, but it should not dictate the risk discount applied by market participants.

Reference Value

Reference Value is a facility-derived metric. It reflects the remaining capacity base plus the expected future carry generated by the covered portfolio. It can be calculated from observable or modelled facility inputs, including Remaining Buffer, projected covered volume, capacity fee methodology and remaining duration.

Reference Value can rise when expected carry increases, even if the buffer is unchanged. It can fall when the buffer is impaired, unless higher expected carry offsets the impairment. This makes the metric sensitive to both risk deterioration and business growth.

Market Price

Market Price is set by bids and offers. It reflects the price at which participants are willing to buy or sell exposure to a facility or note. Market Price can trade below, at or above Reference Value depending on risk appetite, liquidity, recovery expectations and uncertainty.

Cerbero should not set the discount. The market should. A desk may apply a larger discount if it believes expected losses, adverse selection, liquidity risk or operator risk are understated. Another participant may buy at that discount if it believes recovery or future carry is mispriced.

Carry distribution and price behavior

When carry is distributed, remaining expected carry declines. If nothing else changes, Reference Value may fall by approximately the amount of carry paid out. This does not mean the holder lost value: part of the value has moved from the note into distributed cash.

This behavior is similar to ex-coupon pricing. The clean value of the instrument may decline after a distribution, while the holder's total return remains unchanged unless facility conditions or market pricing also change.