Financial Terms Sensitivity

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# Definition of Sensitivity

## Sensitivity

The "what if" relationship between variables; the degree to which
changes in one variable cause changes in another variable. A specific synonym
is volatility.

# Related Terms:

## Sensitivity analysis

Analysis of the effect on a project's profitability due to changes in sales, cost, and so on.

## Sensitivity analysis

An approach to understanding how changes in one variable of cost–volume–profit analysis are affected by changes in the other variables.

## sensitivity analysis

a process of determining the amount of change that must occur in a variable before a different decision would be made

## sensitivity analysis

Analysis of the effects of changes in sales, costs, and so on, on project profitability.

## beta

sensitivity of a stock’s return to the return on the market
portfolio.

## Duration

A common gauge of the price sensitivity of an asset or portfolio to a change in interest rates.

## Greeks

Collectively, "greeks" refer to the financial measures delta, gamma,
lambda, rho, theta, and vega, which are sensitivity measures used in
evaluating derivatives.

## Macaulay duration

A widely used measure of price sensitivity to yield
changes developed by Frederick Macaulay in 1938. It is measured in years and
is a weighted average-time-to-maturity of an instrument. The Macaulay
duration of an income stream, such as a coupon bond, measures how long, on
average, the owner waits before receiving a payment. It is the weighted
average of the times payments are made, with the weights at time T equal to
the present value of the money received at time T.

## Volatility

a. Another general term for sensitivity. b. The standard deviation
of the annualized continuously compounded rate of return of an asset. c. A
measure of uncertainty or risk.

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