|Yield curve option-pricing models|
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Definition of Yield curve option-pricing models
Yield curve option-pricing models
models that can incorporate different volatility assumptions along the
The option of terminating an investment earlier than originally planned.
IRS rules used to allocate income on export sales to a foreign sales corporation.
Combinations of the price level and income for which the goods and services market is in equilibrium, or for which both the goods and services market and the money market are in equilibrium.
Aggregate demand for goods and services drawn as a function of the level of national income.
Combinations of price level and income for which the labor market is in equilibrium. The short-run aggregate supply curve incorporates information and price/wage inflexibilities in the labor market, whereas the long-run aggregate supply curve does not.
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
The effective, or true, annual rate of return. The APY is the rate actually
yield curve option-pricing models.
An alternative model to the capital asset pricing model developed by
option based on the average price of the asset during the life of the option.
A model for determining the required rate of return on an asset.
A model, such as the Capital Asset pricing Model (CAPM), that determines the required
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
Binomial option pricing model
An option pricing model in which the underlying asset can take on only two
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
Bond equivalent yield
Bond yield calculated on an annual percentage rate method. Differs from annual
The annualized yield to maturity computed by doubling the semiannual yield.
Bond Equivalent Yield
Bond yield calculated on an annual percentage rate method
cafeteria plan a “menu” of fringe benefit options that include
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.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
Capital Asset Pricing Model (CAPM)
A model for estimating equilibrium rates of return and values of
capital asset pricing model (CAPM)
Theory of the relationship between risk and return which states that the expected risk
Capital gains yield
The price change portion of a stock's return.
option on an option.
The extra advantage that firms derive from holding the commodity rather than the future.
A method of pricing in which a mark-up is added to the total product/service cost.
Coupon equivalent yield
True interest cost expressed on the basis of a 365-day year.
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.
For bonds or notes, the coupon rate divided by the market price of the bond.
Annual coupon payments divided by bond price.
The percentage return on a financial asset based on the current price of the asset, without reference to any expected change in the price of the asset. This contrasts with yield-to-maturity, for which the calculation includes expected price changes. See also yield.
Over-the-counter options, such as those offered by government and mortgage-backed
The options available to the seller of an interest rate futures contract, including the quality
Liability-matching models that assume that the liability payments and the asset cash
The curve of discount rates vs. maturity dates for bonds.
Dividend yield (Funds)
Indicated yield represents return on a share of a mutual fund held over the past 12
dividend yield ratio
Cash dividends paid by a business over the most
Dividend yield (Stocks)
Indicated yield represents annual dividends divided by current stock price.
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.
dual pricing arrangement
a transfer pricing system that allows
The ratio of earnings per share after allowing for tax and interest payments on fixed interest
Effective annual yield
Annualized interest rate on a security computed using compound interest techniques.
Effective Annual Yield
Annualized rate of return on a security computed using compound
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
Equivalent bond yield
Annual yield on a short-term, non-interest bearing security calculated so as to be
Equivalent taxable yield
The yield that must be offered on a taxable bond issue to give the same after-tax
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.
Extrapolative statistical models
models that apply a formula to historical data and project results for a
Flattening of the yield curve
A change in the yield curve where the spread between the yield on a long-term
Foreign currency option
An option that conveys the right to buy or sell a specified amount of foreign
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.
The yield, based on the most recent quarterly rate times four. To determine the yield, divide
The graphical expression of a utility function, where the horizontal axis measures risk and
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
Theory that says a country's trade deficit will initially worsen after its currency depreciates because
labor yield variance
(standard mix X actual hours X standard rate) - (standard mix X standard hours X standard rate);
curve showing how tax receipts vary with the tax rate.
a model that helps predict how labor time
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.
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
material yield variance
(standard mix X actual quantity X standard price) - (standard mix X standard quantity X standard price);
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
Non-parallel shift in the yield curve
A shift in the yield curve in which yields do not change by the same
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
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