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Financial Terms | |
Time value of an option |
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Definition of Time value of an optionTime value of an optionThe portion of an option's premium that is based on the amount of time remaining
Related Terms:Abandonment optionThe option of terminating an investment earlier than originally planned. Account ValueThe sum of all the interest options in your policy, including interest. Accumulated ValueAn amount of money invested plus the interest earned on that money. Adjusted present value (APV)The net present value analysis of an asset if financed solely by equity American optionAn option that may be exercised at any time up to and including the expiration date. American optionAn option that can be exercised any time until its American-style optionAn option contract that can be exercised at any time between the date of purchase and ![]() approximated net realizable value at split-off allocationa method of allocating joint cost to joint products using a Arbitrage-free option-pricing modelsYield curve option-pricing models. Asian optionoption based on the average price of the asset during the life of the option. Bargain-purchase-price optionGives the lessee the option to purchase the asset at a price below fair market Barrier optionsContracts with trigger points that, when crossed, automatically generate buying or selling of Basket optionsPackages that involve the exchange of more than two currencies against a base currency at Benefit ValueThe amount of cash payable on a benefit. Binomial option pricing modelAn option pricing model in which the underlying asset can take on only two Black-Scholes option-pricing modelA model for pricing call options based on arbitrage arguments that uses ![]() Bond valueWith respect to convertible bonds, the value the security would have if it were not convertible Book valueA company's book value is its total assets minus intangible assets and liabilities, such as debt. A BOOK VALUEAn asset’s cost basis minus accumulated depreciation. Book ValueThe value of an asset as carried on the balance sheet of a Book valueAn asset’s original cost, less any depreciation that has been subsequently incurred. book valueNet worth of the firm’s assets or liabilities according book value and book value per shareGenerally speaking, these terms BOOK VALUE OF COMMON STOCKThe theoretical amount per share that each stockholder would receive if a company’s assets were sold on the balance sheet’s date. Book value equals: Book value per shareThe ratio of stockholder equity to the average number of common shares. Book value Book Value per ShareThe book value of a company divided by the number of shares Break-even timeRelated: Premium payback period. ![]() business-value-added activityan activity that is necessary for the operation of the business but for which a customer would not want to pay cafeteria plan a “menu” of fringe benefit options that includecash or nontaxable benefits Call an optionTo exercise a call option. Call optionAn option contract that gives its holder the right (but not the obligation) to purchase a specified Call OptionA contract that gives the holder the right to buy an asset for a call optionRight to buy an asset at a specified exercise price on or before the exercise date. CAPITAL IN EXCESS OF PAR VALUEWhat a company collected when it sold stock for more than the par value per share. Carrying valueBook value. Cash flow time-lineLine depicting the operating activities and cash flows for a firm over a particular period. Cash-surrender valueAn amount the insurance company will pay if the policyholder ends a whole life Cash Surrender ValueThis is the amount available to the owner of a life insurance policy upon voluntary termination of the policy before it becomes payable by the death of the life insured. This does not apply to term insurance but only to those policies which have reduced paid up values and cash surrender values. A cash surrender in lieu of death benefit usually has tax implications. Cash Surrender ValueBenefit that entitles a policy owner to an amount of money upon cancellation of a policy. Cash value added (CVA)A method of investment appraisal that calculates the ratio of the net present value of an Compound optionoption on an option. Conversion valueAlso called parity value, the value of a convertible security if it is converted immediately. Covered or hedge option strategiesStrategies that involve a position in an option as well as a position in the Currency optionAn option to buy or sell a foreign currency. cycle timethe time between the placement of an order to Dealer optionsOver-the-counter options, such as those offered by government and mortgage-backed Delivery optionsThe options available to the seller of an interest rate futures contract, including the quality Doubling optionA sinking fund provision that may allow repurchase of twice the required number of bonds Down-and-in optionBarrier option that comes into existence if asset price hits a barrier. Down-and-out optionBarrier option that expires if asset price hits a barrier. Economic Value Added (EVA)Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge economic value added (EVA)a measure of the extent to which income exceeds the dollar cost of capital; calculated economic value added (EVA)Term used by the consulting firm Stern Stewart for profit remaining after deduction of the cost Elasticity of an optionPercentage change in the value of an option given a 1% change in the value of the Embedded optionAn option that is part of the structure of a bond that provides either the bondholder or employee time sheeta source document that indicates, for each employee, what jobs were worked on during the day and for what amount of time Equity optionsSecurities that give the holder the right to buy or sell a specified number of shares of stock, at Escalating Price OptionA nonqualified stock option that uses a sliding scale for European optionoption that may be exercised only at the expiration date. Related: american option. European optionAn option that can be exercised only on its expiration date. European-style optionAn option contract that can only be exercised on the expiration date. Exercise valueThe amount of advantage over a current market transaction provided by an in-the-money Exercising the optionThe act buying or selling the underlying asset via the option contract. Exit OptionsA variety of options available to an investor to recover their invested capital and the return on their investment. Exit valueThe value that an asset is expected to have at the time it is sold at a predetermined Expected valueThe weighted average of a probability distribution. Expected ValueThe value of the possible outcomes of a variable weighted by the Expected value of perfect informationThe expected value if the future uncertain outcomes could be known Extraordinary positive valueA positive net present value. Face valueSee: Par value. Face ValueThe nominal value of a security. Also called the par value. Face valueThe maturity value of a security. Also known as par value, face valuePayment at the maturity of the bond. Also called par value or maturity value. Face ValueThe payoff value of a bond upon maturity. Also called par value. See principal. Face ValueThe nominal value which appears on the face of a document recording an entitlement, generally an amount of money that has to be repaid on the maturity of a debt instrument. Fair market valueThe price that an asset or service will fetch on the open market. Fair Market ValueThe highest price available, expressed in terms of cash, in an open and unrestricted market between informed, prudent parties acting at arm's length and under no compulsion to transact. Fair ValueThe amount at which an asset could be purchased or sold or a liability incurred or Firm's net value of debtTotal firm value minus total firm debt. Foreign currency optionAn option that conveys the right to buy or sell a specified amount of foreign Future valueThe amount of cash at a specified date in the future that is equivalent in value to a specified Future ValueThe amount a given payment, or series of payments, will be worth future valuethe amount to which one or more sums of Future valueThe value that a sum of money (the present value) earning future valueAmount to which an investment will grow after earning interest. Future ValueThe amount to which a payment or series of payments will grow by a given future date when compounded by a given interest rate. FVIF future value interest factor. Futures optionAn option on a futures contract. Related: options on physicals. Garmen-Kohlhagen option pricing modelA widely used model for pricing foreign currency options. Greenshoe optionoption that allows the underwriter for a new issue to buy and resell additional shares. Heavenly Parachute Stock OptionA nonqualified stock option that allows a deceased option holder’s estate up to three years in which to exercise his or her idle timethe amount of time spent in storing inventory or Incentive Stock OptionAn 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 Index optionA call or put option based on a stock market index. inspection timethe time taken to perform quality control activities Interest OptionOne of several investment accounts in which your premiums may be invested within your life insurance policy. Intrinsic value of a firmThe present value of a firm's expected future net cash flows discounted by the Intrinsic value of an optionThe amount by which an option is in-the-money. An option which is not in-themoney Investment valueRelated:straight value. 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