Alphabetical N - Z

Naked Position	A short position in a call option that is not combined with a long position in the underlying asset.
NASDAQ	National Association of Securities Dealers
National Debt	The total outstanding debt of the central government especially bonds and national savings
New Issue	The placing of company shares on the stock exchange.
NIF	Note Issuance Facility
NMS	Normal Market Size - This is the classification concept replacing the three classes alpha, beta and gamma. It is based on a percentage of an average days trading. There are 12 bands and they are used to decide the minimum quote size, the maximum size for immediate publication of trades and the maximum size handled by the SAEF system (UK)
No Arbitrage Assumption	The assumption that there are no arbitrage opportunities in market prices.
Noise Trader	A trader who randonly buys and sells
Non-Callable Bond	??
Nonsystematic Risk	Risk that can be diversified away
Normal Backwardation	A situation where the futures price is below the expected future spot price
Normal Market	A market where futures prices increase with maturity.
Notional	??
Notional Principle	The principal used to calculate payments in an interest rate swap. The prinipal is "notional" because it is neither paid nor received.
NPV	Net Present Value
Numerical Procedure	A method of valuing an option when no formula is available.
Obligor	A person who has an obligation (by a legal binding) to pay off debt.
Off The Run	Once a new security (of any particular maturity) is issued the previously issued security with the same maturity becomes "off the run".
Offer for Sale	A method of bringing a company to the market. may be a fixed price or by tender (same as IPO in the UK)
Offer Price	see Ask Price
Offer Rate	The dealers selling price
On The Run	The most recently issued security of any particular maturity.
OPEC	Organisation of Petroleum Exporting Countries
Open Cry	??
Open Interest	The total number of long posiitons outstanding in a futures contract (equals the total number of short positions).
Open Outcry	Face to face trading
Option	The right to buy or sell an asset.
Option Class	All options of the same type (call or put) on a particular stock.
Option Dated Forward Rate	A forward rate (foreign exchange), but the date is more flexible.
Option Series	All options of a certain class with the same strike price and expiration date.
Options	The right but not the obligation to buy/sell equities, bonds, foreign exchange or interest rate contracts by a future date at a price agreed now. Traded options means the options themselves can be bought or sold.
Order Book	SETS (Stock Exchange Trading System)
Order Book Official	see Board Broker
Ordinary Share	The most common also the riskest type of share
Original Issue Discount	??
Out-Of-The-Money Option	Either - a call option where the asset price is less than the strike price or - a put option where the asset price is greater than the strike price.
Outright	The sale or purchase of a currency for delivery on any date other than spot.
Over The Counter	Dealing outside a trading exchange, for example a currency option purchased from a bank.
Overfunding	The issue of government bonds or treasury bills not for immediate government borrowing needs but as an instrument of monetary control
Overnight	Transaction for settlement tomorrow, taken out today.
Package	A derivative that is a portfolio of standard calls and puts, possibly combined with a position in forward contracts and the asset itself.
PAR	The nominal value of a security, for example $1000 for US treasury bonds or £100 for UK government bonds
Par Frequency	??
Par Value	The principal amount of a bond
Par Yield	The coupon on a bond that makes its price equal the principal.
Parallel Shift	A movement in the yield curve where each point on the curve changes by the same amount.
Partially Unwound	??
Passive	Often used to refer to long only investment
Path-Dependent Option	An option whose payoff depends on the whole path followed by the underlying variable - not just its final value.
Payoff	The cash realised by the holder of an option or other derivtaive at the end of its life.
PB Ratio	Price/Book ratio
PE Ratio	Price/Earnings ratio - Ratio of share price to earnings after tax
Pension Funds	The groups that administer pensions schemes.
Perpetual	A security without time limit for redemption
Perpetuity	??
Physical	??
PIBOR	Paris Interbank Offered Rate
PIK	Payment in Kind (pic payment)
Placing	A method of bringing a company to the market.
Plain Vanilla	A term used to describe a standard deal
Portfolio Immunization	Making a portfolio relatively insensitive to interest rates.
Portfolio Insurance	Entering into trades to ensure that the value of a portfolio will not fall below a certain level.
Position Limit	The maximum position a trader (a group of traders acting together) is allowed to hold.
PPP	Purchasing Power Parity
Preference Share	Dividend is paid as a fixed percentage.
Premia	The plural of risk premium.
Premium Bond	??
Prepayment Function	A function estimating the prepayment of principal on a portfolio of mortgages in terms of other variables.
Pre-Refunded	??
Primary Market	Markets where securities are sold when first issued.
Prime Broker	??
Principal	The par or face value of a debt instrument.
Principal Only	A mortgage backed security where the holder receives only principal cash flows on the underlying mortgage.
Private Banking	Specialist banking services for high net worth individuals
Privatisation	Conversion of a state run company to a public limited status.
Program Trading	A procedure where trades are automatically generated by a computer and transmitted to the trading floor of an exchange.
Promissory Note	A signed promise to pay a sum of money
Prospective Dividend	The dividend which has been forecast for its current yield
Protective Put	A put option combined with a long position in the underlying.
PSBR	??
Purchasing Power Parity	The belief that inflationary differentials between countires are the long-run determininants of currency movements.
Put Bonds	??
Put Option	??
Put-Call Parity	The relationship between the price of a European call option and the price of a European put option when they have the same strike price and the same maturity date.
Puttable Bond	A bond where the holder has the right to sell it back to the issuer at certain predetermined times for a predetermined price.
Puttable Swap	A swap where one side has the right to terminate early.
Quanto	A derivative where the payoff is defined by variables associated with one currency but is paid in another currency.
RAFT	Revolving Acceptance Facility by Tender
Rainbow Option	An option whose payoff is dependent on two or more underlying variables.
Range-Forward Contract	The combination of a long call and short put or the combination of a short call and long put.
Rating Agency	Such as Moodys, Standard & Poors and Fitch which rate the default risk on corporate and soverign debt.
Real Interest Rate	The return on an investment once the effect of inflation is taken into account.
Rebalancing	The process of adjusting a trading position periodically. Usually the purpose is to maintain delta neutral.
Redeem	Buy back or pay off.
Redeemable	Applied to a preference share or bond - may be redeemed by the issuer on terms stated at outset.
Redemption	??
Redemption Date	??
Redemption Yield	??
Registered	??
Repayment Mortgage	Mortgage on which capital and interest are gradually repaid.
Repo	??
Repo Rate	The rate of interest in a repo transation.
Repurchase Agreement	Selling securities and agreeing to buy then back at a slightly higher price.
Reset Date	The date in a swap or cap or floor when the floating rate for the next period is set.
Residual Risk	??
Retained Earnings	Past profits which the company has not distributed to shareholders.
Reversion Level	The level that the value of a market variable (e.g. an interest rate) tends to revert.
Revolver Bond	A Revolver Bond is a variant of a regular Bond or other debt security.
Revolving Credit	A commitment to lend on a recurring basis on pre-defined terms
Rho	Rate of change of the price of a derivative with the interest rate.
Rights Issue	An offer of shares for cash to existing shareholders in proportion to their existing holdings (e.g. 2 for 1). An issue to existing shareholders of a security giving them the right to buy new shares at a certain price.
Risk	Government transactions are regarded as the safest and therefore have the lowest rates of interest
Risk Free Rate	The rate of interest that can be earned without assuming any risk.
Risk Management	??
Risk Neutral Valuation	The valuation of an option or other derivative assuming the world is risk neutral. Risk-neutral valuation gives the correct price for a derivtaive in all worlds, not just in the risk-neutral world.
Risk Neutral World	A world where investors are assumed to require no extra return on average for bearing risks.
Risk Premium	The expected rate of return above the risk free interest rate.
Risk Weighted Assets	RWA is the aggregate measure of different risk factors affecting the evaluation of financial products.
Roll Back	see Backwards induction
Rolling Over	Renewal of a bank loan with alteration of interest rate as per the agreed formula, for example LIBOR + 1%
Rolling Settlement	For example '5 working days' that is the deal on Tuesday, settle next Tuesday, deal Wednesday, settle next Wednesday, instead of all deals within a given 'account' being settled on a given day
Rollover	In exchange traded derivatives, rolling a position from one expiry or delivery month to the next.
RORAC	Return On Risk Adjusted Capital
RUF	Revolving Underwriting Facility
Running Yield	Flat Yield
SAEF	Stock Exchange Automated Execution Facility
Sale By Tender	??
Samurai Bonds	A yen bond issued in Japan by non residents
Savings Ratio	The proportion of income which is saved
Scalper	A trader who holds positions for a very short period of time.
Scenario Analysis	An analysis of the effects of possible alternative future movements in market variables on the value of a portfolio.
Scholes-Merton	The Nobel prize winning revision of the Black-Scholes option pricing model.
Scrip Issue	same as bonus issue
SEAQ	Stock Exchange Automated Quotation System for International Securities
SEATS	??
Secondary Markets	The buying and selling of a security after its primary issue
Secured Bond	??
Securities and Exchange Commission	US body controlling regulation of the market (Securities and Exchange Commission)
Securitisation	The borrowing of money through issue of securities on international markets instead of through a bank loan. Also converting an existing loan into securities, for example mortgage bonds
Series	All options of the same class, exercise price and expiry date
SETS	Stock Exchange Trading System -
Settlement Date	When the money for a given trade is due to be paid (and the securities handed over)
Settlement Day	??
Settlement Price	The average of the prices that a contract trades for immediately before the bell signalling the close of trading for that day. It is used in mark-to-market calculations.
Shares	Shares are shareholdings in companies with reward by way of dividends and capital gains (called equities)
Short	The term going short is when you intentionally sell something you don't own.
Short Cover	Buying a security that you were previously short
Short Hedge	A hedge where a short futures poisition is taken.
Short Position	The agreement to sell. A position involving the sale of an asset.
Short Rate	The interest rate applying for a very short period of time.
Short Selling	Selling shares that have been borrowed from another investor
Short Squeeze	??
Shout Option	An option where the holder has the right to lock in a minimum value for the payoff at one time during its life.
Sight Bill	A bill of exchange payable on acceptance
Sinking Fund	Payments made by the borrower on a regular basis to a special account to set aside the necessary funds for redemption of its long-term debt.
Soft Commodities	Sugar, coffee, cocoa etc as opposed to metals
Soft Currencies	??
Solvent	You are capable ot meeting your financial obligations
Special Purpose Vehicle	??
Specialist	An individual responsible to managing limit orders on some exchanges.
Split	Existing shares are reorganised "split" into more shares for example 2 shares @ 25p are exchanged for 1 share @ 50p
Spot	Today's rate for settlement in 2 days
Spot Interest Rate	see XZero-Coupon Interest Rate
Spot Price	The price for immediate delivery.
Spot Volatilities	The volatilities used to price a cap when a different volatility is used for each caplet.
Spread	Difference between a bid and an offer rate. More generally between one rate and another
Spread Trade	Treasury bond vs Corporate bond
Spread Transaction	A position in two or more options of the same type.
Stag	One who applies for a new issue in the hope of selling for a premium - no real interest in the share
Static Hedge	A hedge that does not have to be changed once it has been initialised
Step-Up Swap	A swap where the principal increases over time in a predetermined way.
Stochastic Variable	A variable whose future value is uncertain
Stock	Stock or Equity ??
Stock Borrowing	When a dealer has a short position, an alternative to buying the stock is to 'borrow' it from another dealer.
Stock Dividend	A dividend paid in the form of additional shares.
Stock Index	An index monitoring the value of a portfolio of stocks.
Stock Index Future	Futures on a stock index.
Stock Index Option	An option on a stock index.
Stock Lending	stock borrowing
Stock Option	Option on a stock
Stock Split	The conversion of each existing share into more than one new share
Stocks	Fixed interest securities, for example bonds, debentures, preference shares
Stop-Loss Order	An order to a broker to close out a position and take the profits to date whenever a given price level is reached
Storage Costs	The costs of storing a commodity.
Straddle	A traded option strategy, simultaneous purchase/sale of both call and put options for the same share, exercise price and expiry date. A long position in a call and a put with the same strike price.
Strangle	A long position in a call and a put with different strike prices.
Strap	A long position in twp call options and one put option with the same strike price.
Stress Testing	Testing of the impact of extreme market moves on the value of a portfolio.
Strike Price	The price at which you can buy or sell the security (usually stocks).
Strip	A long position in one call option and two put options with the same strike price.
Stripped Bonds	Coupon stripping
Strips	Stripped government bonds in the US - Separate trading of Registered Interest and Principal Securities
Structured Products	??
Subordinate Debt	A bond that, in the event of liquidation, can claim only after other senior debts has been met
Subpoenas	A subpoena is a writ by a government agency (typically a court) that has the authority to order a person or company to testify or face punishment.
Superdot	Automated execution system on the New York Stock Exchange
Swap	An agreement to exchange cash flows in the future according to a prearranged formula.
Swap Rate	The fixed rate of an interest rate swap that causes the swap to have a value of zero.
Swaps	Exchange of debt obligations between two parties either exchange of currencies either fixed/floating or floating/fixed and sometimes both.
SwapsWire	Created with the intention of providing a new way to achieve confirmation of OTC interest rate swaps.
Swaption	An option to have a swap at a future point in time. An option to enter into an interest rate swap where a specified fixed rate is exchanges for floating.
SWIFT	Society for Worldwide Interbank Financial Telecommunications. Banks messaging system
Swing Option	Energy option in which the rate of consumption must be between a minimum and maximum level. There is usually a limit on the number of times the option holder can change the rate at which the energy is consumed.
Syndicate	managers, underwriters and selling agents of a bond or bank loan
Synthetic Bond	??
Synthetic CDO	??
Synthetic Option	An option created by trading the underlying asset.
Systematic Risk	Risk that cannot be diversified away.
Take-And-Pay Option	see Swing Option
TALISMAN	Transfer Accounting Ledgement for Investors Stock Management for Principals - the SE Computerised Settlement System (UK). Being replaced by CREST
Tap Stock	In general in bond markets further issue of a previously issued bond.
Tender	A bank loan or new security is offered to dealers who must complete for the business. If settled on a striking price basis, all pay the same price. If offered on a bid price basis, all pay the price they bid
Tenor	Used to define an amount of time.
Term Sheet	The relationship between interest rates and their maturities.
Term Structure of Interest Rates	The relationship between interest rates and their maturities.
Terminal Value	The value at maturity
Theta	Rate of change of the price of an option (or other derivative) with time
Ticks	Smallest price movement of a contract, for example 0.01 or 1/32
Tier One Capital	??
Tier One Equity	??
Tier Two Capital	??
Time Decay	see Theta
Time Value	That part of an option premium which is not the intrinsic value.
Tombstone	Formal notice in the press of a syndicated loan, bond issue, commercial paper programme
TOPIC	Teletext Output of Price Information by Computer - the standardised display of SEAQ information (UK)
Total Return Swap	A swap of the return on one portfolio of assets for the return on another portfolio of assets.
Touch Prices	The lowest bid price and lowest offer price for a particular stock or share
Trade Bill	A bill of exchange not endorsed by a bank and not eligible for rediscount at the central bank
Trade Capture	??
Trade Date	The date a trade is agreed as opposed to settled
Trade Flow	??
Trade Life Cycle	??
Traded Option	An option to buy or sell a share/currency/index etc contract later at a price agreed today.
TradePoint	A UK share trading system using computerised order matching. (introduced Sept 1996)
Tranche	Further (large) issue of an existing bond to meet the needs of the market
Tranchette	Further (small) issue of an existing bond to meet the needs of the market
Transaction Costs	The cost of carrying out a trade (commissions plus the difference between the price obtained and the midpoint of the bid-offer spread).
Treasury Bill	A short-term non coupon bearing instrument issued by the government to finance its debt. This is how governments can raise money.
Treasury Bond	A long-term coupon bearing instrument issued by the government to finance its debt.
Treasury Bond Future	A futures contract on Treasury Bonds
Treasury Note	see Treasury Bond (Treasury Notes have maturities of less than 10 years)
Treasury Note Future	a futures contract on Treasury Notes
Tree	The representation of the evolution of the value of a market variable for the purpose of valuing an option or other derivatiave.
Trinomial Tree	??
Undated	Perpetual
Under Determined	??
Underlying Variable	A variable that the price of an option or other derivatiave depends on
Unit Trust	a portfolio of holdings in various companies, divided into units which are bought and sold directly. An 'open ended' fund for example.
Unsecured Bond	??
Unsettled Cash	This is the cash amount before the trade has actually been settled.
Unsystematic Risk	see Nonsystematic Risk
Unwind	To reverse a transactions by using an offsetting transaction
Up and In Option	An option that comes into existence when the price of the underlying asset increases to a certain level.
Up and Out Option	An option that ceases to exist when the price of the underlying asset increases to a certain level.
USM	Unlisted Securities Market
Value at Risk	A loss that will not be exceeds at some specified confidence.
Vanilla	A term used to describe a standard deal
Vanilla Swap	Floating for Fixed
Variance Rate	The square of volatility
Variance-Covariance Matrix	A matrix showing variances of and covariances between a number of different market variables.
Variation Margin	An extra margin required to bring the balance in a margin account up to the initial margin when there is a margin call. Further amounts of deposit (debit or credit) calculated by a Clearing House
Vega	Rate of change in the price of an option (or other derivative) with volatility.
Vega Neutral Portfoilo	A portfolio with a vega of zero.
Venture Capital	capital provided for high risks which would not normally attract conventional finance
Vix Index	A measure of the implied volatility of the S&P index options.
Volatility	A measure of the uncertainty of the return realised on an asset.
Volatility Matrix	A table showing the variation of implied volatilities with strike price and time to maturity.
Volatility Skew	A term used to describe the volatility smile when it is nonsymmetrical
Volatility Smile	The variation of implied volatility with strike prices.
Volatility Swap	Swap where the realised volatility during an accrual period is exchanged for a fixed volatility. Both percentage volatilities are applied to a notional principal.
Volatility Term Structure	The variation of implied volatility with time to maturity.
VRN	Variable rate note. A floating rate note where the margin above LIBOR is not fixed but reset at intervals
WAC	Weighted Average Cost
Warrant	A certificate attached to a bond or security giving the holder the right to buy equity/bonds later at a set price. May be issued on its own without attachments, for example gilts warrants, currency warrants, CAC 40 warrants
Weighted Average Cost	The average cost you have bought an asset at.
White Knight	In a takeover situation a more acceptable bidder may be sought
White Squire	White Squire
Wholesale Money	The borrowing and lending of large sums of money - usually between banks, large companies and the institutions
Wild Card Play	The right to deliver on a futures contract at the closing price for a period of time after the close of trading.
Writing an Option	Selling an option. A margin is paid to the Clearing House.
XD Dividend	Stands for Ex-dividend and means that the buyer does not acquire the right to the recently announced dividend.
XR	Ex-Rights. In the rights issue is a share is marked as XR this means that the purchaser is not entitled to the rights as the cut-off point has passed.
Yankee Bond	A dollar bond issued in the US by non residents
Yard	Foreign exchange term for 1000 million
Yield	Flat Yield
Yield Curve	A graph showing the relationship between short-term and long-term yields for a given security or type of borrowing. Upward slope = positive yield, downward slope = negative yield curve.
Yield Curve Modelling	??
Yield to Maturity	The annualised rate of return if a bond is held to maturity.
Zero Coupon Bond	A bond issued without interest payments but at a deep discount.
Zero Coupon Interest Rate	The interest rate that would be earned on a bond that provides no coupons.
Zero Coupon Yield Curve	A plot of the zero-coupon interest rate against time to maturity
Zero Rate	??

Naked Position A short position in a call option that is not combined with a long position in the underlying asset.
NASDAQ National Association of Securities Dealers
National Debt The total outstanding debt of the central government especially bonds and national savings
New Issue The placing of company shares on the stock exchange.
NIF Note Issuance Facility
NMS Normal Market Size - This is the classification concept replacing the three classes alpha, beta and gamma. It is based on a percentage of an average days trading. There are 12 bands and they are used to decide the minimum quote size, the maximum size for immediate publication of trades and the maximum size handled by the SAEF system (UK)
No Arbitrage Assumption The assumption that there are no arbitrage opportunities in market prices.
Noise Trader A trader who randonly buys and sells
Non-Callable Bond ??
Nonsystematic Risk Risk that can be diversified away
Normal Backwardation A situation where the futures price is below the expected future spot price
Normal Market A market where futures prices increase with maturity.
Notional ??
Notional Principle The principal used to calculate payments in an interest rate swap. The prinipal is "notional" because it is neither paid nor received.
NPV Net Present Value
Numerical Procedure A method of valuing an option when no formula is available.
Obligor A person who has an obligation (by a legal binding) to pay off debt.
Off The Run Once a new security (of any particular maturity) is issued the previously issued security with the same maturity becomes "off the run".
Offer for Sale A method of bringing a company to the market. may be a fixed price or by tender (same as IPO in the UK)
Offer Price see Ask Price
Offer Rate The dealers selling price
On The Run The most recently issued security of any particular maturity.
OPEC Organisation of Petroleum Exporting Countries
Open Cry ??
Open Interest The total number of long posiitons outstanding in a futures contract (equals the total number of short positions).
Open Outcry Face to face trading
Option The right to buy or sell an asset.
Option Class All options of the same type (call or put) on a particular stock.
Option Dated Forward Rate A forward rate (foreign exchange), but the date is more flexible.
Option Series All options of a certain class with the same strike price and expiration date.
Options The right but not the obligation to buy/sell equities, bonds, foreign exchange or interest rate contracts by a future date at a price agreed now. Traded options means the options themselves can be bought or sold.
Order Book SETS (Stock Exchange Trading System)
Order Book Official see Board Broker
Ordinary Share The most common also the riskest type of share
Original Issue Discount ??
Out-Of-The-Money Option Either - a call option where the asset price is less than the strike price or - a put option where the asset price is greater than the strike price.
Outright The sale or purchase of a currency for delivery on any date other than spot.
Over The Counter Dealing outside a trading exchange, for example a currency option purchased from a bank.
Overfunding The issue of government bonds or treasury bills not for immediate government borrowing needs but as an instrument of monetary control
Overnight Transaction for settlement tomorrow, taken out today.
Package A derivative that is a portfolio of standard calls and puts, possibly combined with a position in forward contracts and the asset itself.
PAR The nominal value of a security, for example $1000 for US treasury bonds or £100 for UK government bonds
Par Frequency ??
Par Value The principal amount of a bond
Par Yield The coupon on a bond that makes its price equal the principal.
Parallel Shift A movement in the yield curve where each point on the curve changes by the same amount.
Partially Unwound ??
Passive Often used to refer to long only investment
Path-Dependent Option An option whose payoff depends on the whole path followed by the underlying variable - not just its final value.
Payoff The cash realised by the holder of an option or other derivtaive at the end of its life.
PB Ratio Price/Book ratio
PE Ratio Price/Earnings ratio - Ratio of share price to earnings after tax
Pension Funds The groups that administer pensions schemes.
Perpetual A security without time limit for redemption
Perpetuity ??
Physical ??
PIBOR Paris Interbank Offered Rate
PIK Payment in Kind (pic payment)
Placing A method of bringing a company to the market.
Plain Vanilla A term used to describe a standard deal
Portfolio Immunization Making a portfolio relatively insensitive to interest rates.
Portfolio Insurance Entering into trades to ensure that the value of a portfolio will not fall below a certain level.
Position Limit The maximum position a trader (a group of traders acting together) is allowed to hold.
PPP Purchasing Power Parity
Preference Share Dividend is paid as a fixed percentage.
Premia The plural of risk premium.
Premium Bond ??
Prepayment Function A function estimating the prepayment of principal on a portfolio of mortgages in terms of other variables.
Pre-Refunded ??
Primary Market Markets where securities are sold when first issued.
Prime Broker ??
Principal The par or face value of a debt instrument.
Principal Only A mortgage backed security where the holder receives only principal cash flows on the underlying mortgage.
Private Banking Specialist banking services for high net worth individuals
Privatisation Conversion of a state run company to a public limited status.
Program Trading A procedure where trades are automatically generated by a computer and transmitted to the trading floor of an exchange.
Promissory Note A signed promise to pay a sum of money
Prospective Dividend The dividend which has been forecast for its current yield
Protective Put A put option combined with a long position in the underlying.
PSBR ??
Purchasing Power Parity The belief that inflationary differentials between countires are the long-run determininants of currency movements.
Put Bonds ??
Put Option ??
Put-Call Parity The relationship between the price of a European call option and the price of a European put option when they have the same strike price and the same maturity date.
Puttable Bond A bond where the holder has the right to sell it back to the issuer at certain predetermined times for a predetermined price.
Puttable Swap A swap where one side has the right to terminate early.
Quanto A derivative where the payoff is defined by variables associated with one currency but is paid in another currency.
RAFT Revolving Acceptance Facility by Tender
Rainbow Option An option whose payoff is dependent on two or more underlying variables.
Range-Forward Contract The combination of a long call and short put or the combination of a short call and long put.
Rating Agency Such as Moodys, Standard & Poors and Fitch which rate the default risk on corporate and soverign debt.
Real Interest Rate The return on an investment once the effect of inflation is taken into account.
Rebalancing The process of adjusting a trading position periodically. Usually the purpose is to maintain delta neutral.
Redeem Buy back or pay off.
Redeemable Applied to a preference share or bond - may be redeemed by the issuer on terms stated at outset.
Redemption ??
Redemption Date ??
Redemption Yield ??
Registered ??
Repayment Mortgage Mortgage on which capital and interest are gradually repaid.
Repo ??
Repo Rate The rate of interest in a repo transation.
Repurchase Agreement Selling securities and agreeing to buy then back at a slightly higher price.
Reset Date The date in a swap or cap or floor when the floating rate for the next period is set.
Residual Risk ??
Retained Earnings Past profits which the company has not distributed to shareholders.
Reversion Level The level that the value of a market variable (e.g. an interest rate) tends to revert.
Revolver Bond A Revolver Bond is a variant of a regular Bond or other debt security.
Revolving Credit A commitment to lend on a recurring basis on pre-defined terms
Rho Rate of change of the price of a derivative with the interest rate.
Rights Issue An offer of shares for cash to existing shareholders in proportion to their existing holdings (e.g. 2 for 1). An issue to existing shareholders of a security giving them the right to buy new shares at a certain price.
Risk Government transactions are regarded as the safest and therefore have the lowest rates of interest
Risk Free Rate The rate of interest that can be earned without assuming any risk.
Risk Management ??
Risk Neutral Valuation The valuation of an option or other derivative assuming the world is risk neutral. Risk-neutral valuation gives the correct price for a derivtaive in all worlds, not just in the risk-neutral world.
Risk Neutral World A world where investors are assumed to require no extra return on average for bearing risks.
Risk Premium The expected rate of return above the risk free interest rate.
Risk Weighted Assets RWA is the aggregate measure of different risk factors affecting the evaluation of financial products.
Roll Back see Backwards induction
Rolling Over Renewal of a bank loan with alteration of interest rate as per the agreed formula, for example LIBOR + 1%
Rolling Settlement For example '5 working days' that is the deal on Tuesday, settle next Tuesday, deal Wednesday, settle next Wednesday, instead of all deals within a given 'account' being settled on a given day
Rollover In exchange traded derivatives, rolling a position from one expiry or delivery month to the next.
RORAC Return On Risk Adjusted Capital
RUF Revolving Underwriting Facility
Running Yield Flat Yield
SAEF Stock Exchange Automated Execution Facility
Sale By Tender ??
Samurai Bonds A yen bond issued in Japan by non residents
Savings Ratio The proportion of income which is saved
Scalper A trader who holds positions for a very short period of time.
Scenario Analysis An analysis of the effects of possible alternative future movements in market variables on the value of a portfolio.
Scholes-Merton The Nobel prize winning revision of the Black-Scholes option pricing model.
Scrip Issue same as bonus issue
SEAQ Stock Exchange Automated Quotation System for International Securities
SEATS ??
Secondary Markets The buying and selling of a security after its primary issue
Secured Bond ??
Securities and Exchange Commission US body controlling regulation of the market (Securities and Exchange Commission)
Securitisation The borrowing of money through issue of securities on international markets instead of through a bank loan. Also converting an existing loan into securities, for example mortgage bonds
Series All options of the same class, exercise price and expiry date
SETS Stock Exchange Trading System -
Settlement Date When the money for a given trade is due to be paid (and the securities handed over)
Settlement Day ??
Settlement Price The average of the prices that a contract trades for immediately before the bell signalling the close of trading for that day. It is used in mark-to-market calculations.
Shares Shares are shareholdings in companies with reward by way of dividends and capital gains (called equities)
Short The term going short is when you intentionally sell something you don't own.
Short Cover Buying a security that you were previously short
Short Hedge A hedge where a short futures poisition is taken.
Short Position The agreement to sell. A position involving the sale of an asset.
Short Rate The interest rate applying for a very short period of time.
Short Selling Selling shares that have been borrowed from another investor
Short Squeeze ??
Shout Option An option where the holder has the right to lock in a minimum value for the payoff at one time during its life.
Sight Bill A bill of exchange payable on acceptance
Sinking Fund Payments made by the borrower on a regular basis to a special account to set aside the necessary funds for redemption of its long-term debt.
Soft Commodities Sugar, coffee, cocoa etc as opposed to metals
Soft Currencies ??
Solvent You are capable ot meeting your financial obligations
Special Purpose Vehicle ??
Specialist An individual responsible to managing limit orders on some exchanges.
Split Existing shares are reorganised "split" into more shares for example 2 shares @ 25p are exchanged for 1 share @ 50p
Spot Today's rate for settlement in 2 days
Spot Interest Rate see XZero-Coupon Interest Rate
Spot Price The price for immediate delivery.
Spot Volatilities The volatilities used to price a cap when a different volatility is used for each caplet.
Spread Difference between a bid and an offer rate. More generally between one rate and another
Spread Trade Treasury bond vs Corporate bond
Spread Transaction A position in two or more options of the same type.
Stag One who applies for a new issue in the hope of selling for a premium - no real interest in the share
Static Hedge A hedge that does not have to be changed once it has been initialised
Step-Up Swap A swap where the principal increases over time in a predetermined way.
Stochastic Variable A variable whose future value is uncertain
Stock Stock or Equity ??
Stock Borrowing When a dealer has a short position, an alternative to buying the stock is to 'borrow' it from another dealer.
Stock Dividend A dividend paid in the form of additional shares.
Stock Index An index monitoring the value of a portfolio of stocks.
Stock Index Future Futures on a stock index.
Stock Index Option An option on a stock index.
Stock Lending stock borrowing
Stock Option Option on a stock
Stock Split The conversion of each existing share into more than one new share
Stocks Fixed interest securities, for example bonds, debentures, preference shares
Stop-Loss Order An order to a broker to close out a position and take the profits to date whenever a given price level is reached
Storage Costs The costs of storing a commodity.
Straddle A traded option strategy, simultaneous purchase/sale of both call and put options for the same share, exercise price and expiry date. A long position in a call and a put with the same strike price.
Strangle A long position in a call and a put with different strike prices.
Strap A long position in twp call options and one put option with the same strike price.
Stress Testing Testing of the impact of extreme market moves on the value of a portfolio.
Strike Price The price at which you can buy or sell the security (usually stocks).
Strip A long position in one call option and two put options with the same strike price.
Stripped Bonds Coupon stripping
Strips Stripped government bonds in the US - Separate trading of Registered Interest and Principal Securities
Structured Products ??
Subordinate Debt A bond that, in the event of liquidation, can claim only after other senior debts has been met
Subpoenas A subpoena is a writ by a government agency (typically a court) that has the authority to order a person or company to testify or face punishment.
Superdot Automated execution system on the New York Stock Exchange
Swap An agreement to exchange cash flows in the future according to a prearranged formula.
Swap Rate The fixed rate of an interest rate swap that causes the swap to have a value of zero.
Swaps Exchange of debt obligations between two parties either exchange of currencies either fixed/floating or floating/fixed and sometimes both.
SwapsWire Created with the intention of providing a new way to achieve confirmation of OTC interest rate swaps.
Swaption An option to have a swap at a future point in time. An option to enter into an interest rate swap where a specified fixed rate is exchanges for floating.
SWIFT Society for Worldwide Interbank Financial Telecommunications. Banks messaging system
Swing Option Energy option in which the rate of consumption must be between a minimum and maximum level. There is usually a limit on the number of times the option holder can change the rate at which the energy is consumed.
Syndicate managers, underwriters and selling agents of a bond or bank loan
Synthetic Bond ??
Synthetic CDO ??
Synthetic Option An option created by trading the underlying asset.
Systematic Risk Risk that cannot be diversified away.
Take-And-Pay Option see Swing Option
TALISMAN Transfer Accounting Ledgement for Investors Stock Management for Principals - the SE Computerised Settlement System (UK). Being replaced by CREST
Tap Stock In general in bond markets further issue of a previously issued bond.
Tender A bank loan or new security is offered to dealers who must complete for the business. If settled on a striking price basis, all pay the same price. If offered on a bid price basis, all pay the price they bid
Tenor Used to define an amount of time.
Term Sheet The relationship between interest rates and their maturities.
Term Structure of Interest Rates The relationship between interest rates and their maturities.
Terminal Value The value at maturity
Theta Rate of change of the price of an option (or other derivative) with time
Ticks Smallest price movement of a contract, for example 0.01 or 1/32
Tier One Capital ??
Tier One Equity ??
Tier Two Capital ??
Time Decay see Theta
Time Value That part of an option premium which is not the intrinsic value.
Tombstone Formal notice in the press of a syndicated loan, bond issue, commercial paper programme
TOPIC Teletext Output of Price Information by Computer - the standardised display of SEAQ information (UK)
Total Return Swap A swap of the return on one portfolio of assets for the return on another portfolio of assets.
Touch Prices The lowest bid price and lowest offer price for a particular stock or share
Trade Bill A bill of exchange not endorsed by a bank and not eligible for rediscount at the central bank
Trade Capture ??
Trade Date The date a trade is agreed as opposed to settled
Trade Flow ??
Trade Life Cycle ??
Traded Option An option to buy or sell a share/currency/index etc contract later at a price agreed today.
TradePoint A UK share trading system using computerised order matching. (introduced Sept 1996)
Tranche Further (large) issue of an existing bond to meet the needs of the market
Tranchette Further (small) issue of an existing bond to meet the needs of the market
Transaction Costs The cost of carrying out a trade (commissions plus the difference between the price obtained and the midpoint of the bid-offer spread).
Treasury Bill A short-term non coupon bearing instrument issued by the government to finance its debt. This is how governments can raise money.
Treasury Bond A long-term coupon bearing instrument issued by the government to finance its debt.
Treasury Bond Future A futures contract on Treasury Bonds
Treasury Note see Treasury Bond (Treasury Notes have maturities of less than 10 years)
Treasury Note Future a futures contract on Treasury Notes
Tree The representation of the evolution of the value of a market variable for the purpose of valuing an option or other derivatiave.
Trinomial Tree ??
Undated Perpetual
Under Determined ??
Underlying Variable A variable that the price of an option or other derivatiave depends on
Unit Trust a portfolio of holdings in various companies, divided into units which are bought and sold directly. An 'open ended' fund for example.
Unsecured Bond ??
Unsettled Cash This is the cash amount before the trade has actually been settled.
Unsystematic Risk see Nonsystematic Risk
Unwind To reverse a transactions by using an offsetting transaction
Up and In Option An option that comes into existence when the price of the underlying asset increases to a certain level.
Up and Out Option An option that ceases to exist when the price of the underlying asset increases to a certain level.
USM Unlisted Securities Market
Value at Risk A loss that will not be exceeds at some specified confidence.
Vanilla A term used to describe a standard deal
Vanilla Swap Floating for Fixed
Variance Rate The square of volatility
Variance-Covariance Matrix A matrix showing variances of and covariances between a number of different market variables.
Variation Margin An extra margin required to bring the balance in a margin account up to the initial margin when there is a margin call. Further amounts of deposit (debit or credit) calculated by a Clearing House
Vega Rate of change in the price of an option (or other derivative) with volatility.
Vega Neutral Portfoilo A portfolio with a vega of zero.
Venture Capital capital provided for high risks which would not normally attract conventional finance
Vix Index A measure of the implied volatility of the S&P index options.
Volatility A measure of the uncertainty of the return realised on an asset.
Volatility Matrix A table showing the variation of implied volatilities with strike price and time to maturity.
Volatility Skew A term used to describe the volatility smile when it is nonsymmetrical
Volatility Smile The variation of implied volatility with strike prices.
Volatility Swap Swap where the realised volatility during an accrual period is exchanged for a fixed volatility. Both percentage volatilities are applied to a notional principal.
Volatility Term Structure The variation of implied volatility with time to maturity.
VRN Variable rate note. A floating rate note where the margin above LIBOR is not fixed but reset at intervals
WAC Weighted Average Cost
Warrant A certificate attached to a bond or security giving the holder the right to buy equity/bonds later at a set price. May be issued on its own without attachments, for example gilts warrants, currency warrants, CAC 40 warrants
Weighted Average Cost The average cost you have bought an asset at.
White Knight In a takeover situation a more acceptable bidder may be sought
White Squire White Squire
Wholesale Money The borrowing and lending of large sums of money - usually between banks, large companies and the institutions
Wild Card Play The right to deliver on a futures contract at the closing price for a period of time after the close of trading.
Writing an Option Selling an option. A margin is paid to the Clearing House.
XD Dividend Stands for Ex-dividend and means that the buyer does not acquire the right to the recently announced dividend.
XR Ex-Rights. In the rights issue is a share is marked as XR this means that the purchaser is not entitled to the rights as the cut-off point has passed.
Yankee Bond A dollar bond issued in the US by non residents
Yard Foreign exchange term for 1000 million
Yield Flat Yield
Yield Curve A graph showing the relationship between short-term and long-term yields for a given security or type of borrowing. Upward slope = positive yield, downward slope = negative yield curve.
Yield Curve Modelling ??
Yield to Maturity The annualised rate of return if a bond is held to maturity.
Zero Coupon Bond A bond issued without interest payments but at a deep discount.
Zero Coupon Interest Rate The interest rate that would be earned on a bond that provides no coupons.
Zero Coupon Yield Curve A plot of the zero-coupon interest rate against time to maturity
Zero Rate ??