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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
The Company utilizes derivative financial instruments as part of its overall investment activities. Investments in derivative contracts are subject to additional risk that can result in a loss of all or part of an investment. The Company’s derivative activities are primarily classified by underlying credit risk, interest rate risk, and equity price risk. In addition, the Company is also subject to additional counterparty risk should its counterparties fail to meet the contract terms.
Credit Default Swaps
Credit default swaps (CDS) are generally defined as over‑the‑counter contracts between a buyer and seller of protection against the risk of default on a set of obligations issued by a specified reference entity. The Company is exposed to credit risk when there is an unfavorable change in the value of investments as a result of adverse movements in the underlying credit spreads and enters into these contracts as a buyer of protection so as to minimize the credit risk exposure of its investment portfolio.
The Company has not entered into any new contracts during 2013, and is party to one contract with a notional amount of $4,272 as of September 30, 2013. The Company held three contracts each of which had a notional value of $5,000 as of December 31, 2012. Subsequent to year end, two of these contracts were closed out.
Interest Rate Swaps
The Company is exposed to interest rate risk when there is an unfavorable change in the value of investments as a result of adverse movements in the market interest rates. The Company enters into interest rate swaps to protect against such adverse movements in the interest rates.
Interest rate swaps are contracts whereby counterparties exchange different rates of interest on a specified notional amount for a specified period of time. The payment flows are usually netted against each other, with the difference being paid by one party to the other. The Company enters into these contracts so as to minimize the underlying interest rate exposure of the investment portfolio. The Company is required to post collateral for the benefit of the counterparty. This is included as a component of due from brokers, dealers, and trustees in the consolidated balance sheets.
As of June 24, 2013 the Company terminated its remaining interest rate swap contracts. The Company may enter into new interest rate swap contracts in the future.
The following tables identify the fair value amounts of the derivative instruments as of September 30, 2013 and December 31, 2012, which are included within the derivative financial instruments balances on the consolidated balance sheets, categorized by primary underlying risk:
 
September 30, 2013
 
Asset Derivatives
 
Credit
risk
 
Interest rate
risk
 
Equity price
risk
 
Total
Credit default swaps
$
2

 
$
—

 
$
—

 
$
2

 
Liability Derivatives
 
Credit
risk
 
Interest rate
risk
 
Equity price
risk
 
Total
Interest rate swaps
$
—

 
$
—

 
$
—

 
$
—

 
December 31, 2012
 
Asset Derivatives
 
Credit
risk
 
Interest rate
risk
 
Equity price
risk
 
Total
Credit default swaps
$
834

 
$
—

 
$
—

 
$
834

 
Liability Derivatives
 
Credit
risk
 
Interest rate
risk
 
Equity price
risk
 
Total
Interest rate swaps
$
—

 
$
3,172

 
$
—

 
$
3,172


The following tables identify the unrealized gain/(loss) amounts included within the change in unrealized (depreciation)/appreciation – derivatives balance of the consolidated statements of operations, categorized by primary underlying risk, for the nine month periods ended September 30, 2013 and 2012:
Change in unrealized (depreciation)/appreciation - derivatives
 
2013
 
Credit
risk
 
Interest rate
risk
 
Equity price
risk
 
Total
Credit default swaps
$
(832
)
 
$
—

 
$
—

 
$
(832
)
Interest rate swaps
—

 
3,169

 
—

 
3,169

Total
$
(832
)
 
$
3,169

 
$
—

 
$
2,337

 
2012
 
Credit
risk
 
Interest rate
risk
 
Equity price
risk
 
Total
Credit default swaps
$
(852
)
 
$
—

 
$
—

 
$
(852
)
Interest rate swaps
—

 
(519
)
 
—

 
(519
)
Total
$
(852
)
 
$
(519
)
 
$
—

 
$
(1,371
)