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Yield curve option-pricing models |
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Definition of Yield curve option-pricing modelsYield curve option-pricing modelsmodels that can incorporate different volatility assumptions along the
Related Terms:Abandonment optionThe option of terminating an investment earlier than originally planned. Administrative pricing rulesIRS rules used to allocate income on export sales to a foreign sales corporation. Aggregate Demand CurveCombinations 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 Expenditure CurveAggregate demand for goods and services drawn as a function of the level of national income. Aggregate Supply CurveCombinations 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. 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 Annual percentage yield (APY)The effective, or true, annual rate of return. The APY is the rate actually Arbitrage-free option-pricing modelsyield curve option-pricing models. Arbitrage Pricing Theory (APT)An alternative model to the capital asset pricing model developed by Asian optionoption based on the average price of the asset during the life of the option. Asset pricing modelA model for determining the required rate of return on an asset. Asset pricing modelA model, such as the Capital Asset pricing Model (CAPM), that determines the required 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 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 equivalent yieldBond yield calculated on an annual percentage rate method. Differs from annual Bond-equivalent yieldThe annualized yield to maturity computed by doubling the semiannual yield. Bond Equivalent YieldBond yield calculated on an annual percentage rate method 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 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 yieldThe price change portion of a stock's return. Compound optionoption on an option. Convenience yieldThe extra advantage that firms derive from holding the commodity rather than the future. Cost-plus pricingA method of pricing in which a mark-up is added to the total product/service cost. Coupon equivalent yieldTrue interest cost expressed on the basis of a 365-day year. 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. Current yieldFor bonds or notes, the coupon rate divided by the market price of the bond. current yieldAnnual coupon payments divided by bond price. Current YieldThe 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. 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 Deterministic modelsLiability-matching models that assume that the liability payments and the asset cash Discount curveThe 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 ratioCash dividends paid by a business over the most Dividend yield (Stocks)Indicated yield represents annual dividends divided by current stock price. 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. dual pricing arrangementa transfer pricing system that allows Earnings yieldThe ratio of earnings per share after allowing for tax and interest payments on fixed interest Effective annual yieldAnnualized interest rate on a security computed using compound interest techniques. Effective Annual YieldAnnualized rate of return on a security computed using compound 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 Equity optionsSecurities that give the holder the right to buy or sell a specified number of shares of stock, at Equivalent bond yieldAnnual yield on a short-term, non-interest bearing security calculated so as to be Equivalent taxable yieldThe yield that must be offered on a taxable bond issue to give the same after-tax 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. 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. Extrapolative statistical modelsmodels that apply a formula to historical data and project results for a Flattening of the yield curveA change in the yield curve where the spread between the yield on a long-term Foreign currency optionAn option that conveys the right to buy or sell a specified amount of foreign 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 High-yield bondSee:junk bond. 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. Indicated yieldThe yield, based on the most recent quarterly rate times four. To determine the yield, divide Indifference curveThe graphical expression of a utility function, where the horizontal axis measures risk and Interest OptionOne of several investment accounts in which your premiums may be invested within your life insurance policy. Intrinsic value of an optionThe amount by which an option is in-the-money. An option which is not in-themoney Irrational call optionThe implied call imbedded in the MBS. Identified as irrational because the call is J-curveTheory 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); Laffer Curvecurve showing how tax receipts vary with the tax rate. learning curvea 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. Lookback optionAn 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 facilityA syndicated confirmed credit line with attached options. Naked option strategiesAn unhedged strategy making exclusive use of one of the following: Long call Non-parallel shift in the yield curveA shift in the yield curve in which yields do not change by the same Nonqualified Stock OptionA stock option not given any favorable tax treatment OptionGives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a OptionSee call option and put option OptionA right to buy or sell specific securities or commodities at a stated OptionRight 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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