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Definition of Option premium
The option price.
Also called the option premium, the price paid by the buyer of the options contract for the right
The option of terminating an investment earlier than originally planned.
An option that may be exercised at any time up to and including the expiration date.
An option that can be exercised any time until its
An option contract that can be exercised at any time between the date of purchase and
Yearly amount payable by a client for a policy or component.
Yield curve option-pricing models.
option based on the average price of the asset during the life of the option.
A benefit that automatically forfeits premium payments.
Gives the lessee the option to purchase the asset at a price below fair market
Contracts with trigger points that, when crossed, automatically generate buying or selling of
Packages that involve the exchange of more than two currencies against a base currency at
An option pricing model in which the underlying asset can take on only two
A model for pricing call options based on arbitrage arguments that uses
cash or nontaxable benefits
Call an option
To exercise a call option.
An option contract that gives its holder the right (but not the obligation) to purchase a specified
A contract that gives the holder the right to buy an asset for a
Right to buy an asset at a specified exercise price on or before the exercise date.
option on an option.
the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control
The percentage by which the conversion price in a convertible security exceeds the
Covered or hedge option strategies
Strategies that involve a position in an option as well as a position in the
An option to buy or sell a foreign currency.
Over-the-counter options, such as those offered by government and mortgage-backed
A differential in promised yield that compensates the investor for the risk inherent in
Difference in promised yields between a default-free bond and a riskier bond.
The options available to the seller of an interest rate futures contract, including the quality
A sinking fund provision that may allow repurchase of twice the required number of bonds
Barrier option that comes into existence if asset price hits a barrier.
Barrier option that expires if asset price hits a barrier.
Elasticity of an option
Percentage change in the value of an option given a 1% change in the value of the
An option that is part of the structure of a bond that provides either the bondholder or
Securities that give the holder the right to buy or sell a specified number of shares of stock, at
Escalating Price Option
A nonqualified stock option that uses a sliding scale for
option that may be exercised only at the expiration date. Related: american option.
An option that can be exercised only on its expiration date.
An option contract that can only be exercised on the expiration date.
Exercising the option
The act buying or selling the underlying asset via the option contract.
A variety of options available to an investor to recover their invested capital and the return on their investment.
Foreign currency option
An option that conveys the right to buy or sell a specified amount of foreign
A currency trades at a forward premium when its forward price is higher than its spot price.
An option on a futures contract. Related: options on physicals.
Garmen-Kohlhagen option pricing model
A widely used model for pricing foreign currency options.
option that allows the underwriter for a new issue to buy and resell additional shares.
Heavenly Parachute Stock Option
A nonqualified stock option that allows a deceased option holder’s estate up to three years in which to exercise his or her
Incentive Stock Option
An option to purchase company stock that is not taxable
Index and Option Market (IOM)
A division of the CME established in 1982 for trading stock index
A call or put option based on a stock market index.
One of several investment accounts in which your premiums may be invested within your life insurance policy.
Intrinsic value of an option
The amount by which an option is in-the-money. An option which is not in-themoney
Irrational call option
The implied call imbedded in the MBS. Identified as irrational because the call is
A premium that remains unchanged throughout the life of a policy
Level Premium Life Insurance
This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.
Liquid yield option note (LYON)
Zero-coupon, callable, putable, convertible bond invented by Merrill
Liquid yield option note (LYON)
Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co.
Forward rate minus expected future short-term interest rate.
An option that allows the buyer to choose as the option strike price any price of the
Margin requirement (Options)
The amount of cash an uncovered (naked) option writer is required to
market risk premium
Risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.
Extra average return from investing in longversus short-term Treasury securities.
Multi-option financing facility
A syndicated confirmed credit line with attached options.
Naked option strategies
An unhedged strategy making exclusive use of one of the following: Long call
Nonqualified Stock Option
A stock option not given any favorable tax treatment
Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a
See call option and put option
A right to buy or sell specific securities or commodities at a stated
Right to buy or sell a specified property at a specified amount at some time in the future.
Option-adjusted spread (OAS)
1) The spread over an issuer's spot rate curve, developed as a measure of
The percentage increase in an option's value given a 1% change in the value of the
Option not to deliver
In the mortgage pipeline, an additional hedge placed in tandem with the forward or
Also called the option writer , the party who grants a right to trade a security at a given price in
A contract that, in exchange for the option price, gives the option buyer the right, but not
Options contract multiple
A constant, set at $100, which when multiplied by the cash index value gives the
Options on physicals
Interest rate options written on fixed-income securities, as opposed to those written on
A call option is out-of-the-money if the strike price is greater than the market price
Path dependent option
An option whose value depends on the sequence of prices of the underlying asset
The option of postponing a project without eliminating the possibility of undertaking it.
1) Amount paid for a bond above the par value.
This is your payment for the cost of insurance. You may pay annually, semi-annually, quarterly or monthly. The least expensive method is annually. Using any of the other payment modes will cost you more money. For example, paying monthly will cost about 17% more. If you pay annually and terminate your coverage part way through the year, you may not receive a refund for the remaining months to the annual renewal date.
Annual amount payable, by a client, for selected product or service.
A bond that is selling for more than its par value.
Premium (Credit Insurance)
Annual or monthly amounts payable, by a client, for a selected insurance coverage to insure debt obligations to their creditors are protected.
A nonqualified stock option whose option price is set substantially
Payment schedule of policy premiums, usually selected by the policy owner (monthly, quarterly, annually).
After premiums have been paid for a number of years, further annual premiums may be paid by the current dividends and the surrender of some of the paid-up additions which have built up in the policy. In effect, the policy can begin to pay for itself. Whether a policy becomes eligible for premium offset, the date on which it becomes eligible and whether it remains eligible once premium offset begins, will all depend on how the dividend scale changes over the years. Since dividends are not guaranteed, premium offset cannot be guaranteed either.
Put an option
To exercise a put option.
This security gives investors the right to sell (or put) fixed number of shares at a fixed price within
A contract that gives the holder the right to sell an asset for a
Right to sell an asset at a specified exercise price on or before the exercise date.
Contract that grants the right to sell at a specified price at some time in the future.
Also called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury
options embedded in real assets.
The reward for holding the risky market portfolio rather than the risk-free asset. The spread
The additional rate of return required on a risky project
Expected return in excess of risk-free return as compensation for risk.
The difference between the yields of two bonds because of differences in their risk.
The difference between the required rate of return on a riskless asset with the same expected life.
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