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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. American optionAn option that may be exercised at any time up to and including the expiration date. 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 Pricing Theory (APT)An alternative model to the capital asset pricing model developed by 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. 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. 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 Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and 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. 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. 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 Dividend yield (Funds)Indicated yield represents return on a share of a mutual fund held over the past 12 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. 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. 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 European optionoption that may be exercised only at the expiration date. Related: american option. 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. 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. High-yield bondSee:junk bond. 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 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 Liquid yield option note (LYON)Zero-coupon, callable, putable, convertible bond invented by Merrill Lookback optionAn option that allows the buyer to choose as the option strike price any price of the Liquid yield option note (LYON)Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co. Margin requirement (Options)The amount of cash an uncovered (naked) option writer is required to 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 OptionGives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a Option elasticityThe percentage increase in an option's value given a 1% change in the value of the Option not to deliverIn the mortgage pipeline, an additional hedge placed in tandem with the forward or Option premiumThe option price. Option priceAlso called the option premium, the price paid by the buyer of the options contract for the right Option sellerAlso called the option writer , the party who grants a right to trade a security at a given price in Option writeroption seller. Option-adjusted spread (OAS)1) The spread over an issuer's spot rate curve, developed as a measure of Options contractA contract that, in exchange for the option price, gives the option buyer the right, but not Options contract multipleA constant, set at $100, which when multiplied by the cash index value gives the Options on physicalsInterest rate options written on fixed-income securities, as opposed to those written on Out-of-the-money optionA call option is out-of-the-money if the strike price is greater than the market price Parallel shift in the yield curveA shift in the yield curve in which the change in the yield on all maturities is Path dependent optionAn option whose value depends on the sequence of prices of the underlying asset Postponement optionThe option of postponing a project without eliminating the possibility of undertaking it. Pricing efficiencyAlso called external efficiency, a market characteristic where prices at all times fully Pure yield pickup swapMoving to higher yield bonds. Put an optionTo exercise a put option. Put optionThis security gives investors the right to sell (or put) fixed number of shares at a fixed price within Quality optionAlso called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury Realized compound yieldyield assuming that coupon payments are invested at the going market interest Regulatory pricing riskRisk that arises when regulators restrict the premium rates that insurance companies Relative yield spreadThe ratio of the yield spread to the yield level. Reoffering yieldIn a purchase and sale, the yield to maturity at which the underwriter offers to sell the bonds Required yieldGenerally referring to bonds, the yield required by the marketplace to match available returns Riding the yield curveBuying long-term bonds in anticipation of capital gains as yields fall with the Split-fee optionAn option on an option. The buyer generally executes the split fee with first an initial fee, Spot rate curveThe graphical depiction of the relationship between the spot rates and maturity. Steepening of the yield curveA change in the yield curve where the spread between the yield on a long-term Stochastic modelsLiability-matching models that assume that the liability payments and the asset cash flows Stock index optionAn option in which the underlying is a common stock index. Stock optionAn option in which the underlying is the common stock of a corporation. Stopping curveA curve showing the refunding rates for different points in time at which the expected value
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