Leverage is typically measured by relating a company’s total assets to its equity. The measurement of leverage is straightforward if the company finances its assets with on-balance sheet sources of leverage such as bond issues, bank loans, etc. However, if a company relies on off-balance sheet sources such as derivative instruments, calculating the leverage ratio becomes more complicated. For derivatives such as options and forward contracts, leverage can be implied using leverage ratios. For example, a long position in a forward contract will have a leverage ratio equal to the current notional value divided by the market value of the contract. Likewise, the leverage ratio of a long call option is calculated as delta multiplied by the ratio of its current notional value to its premium. Delta (or hedge ratio) is the rate of change of the option price with respect to the change in the underlying price.

For more complex derivative instruments (such as structured notes, swaps, etc), calculating leverage would require the decomposition of a specific instrument into its basic elements (spot market position, option position, forward position, etc). The following table summarizes how leverage is calculated for major derivative instruments