Alphabetical N - Z

Naked PositionA short position in a call option that is not combined with a long position in the underlying asset.
NASDAQNational Association of Securities Dealers
National DebtThe total outstanding debt of the central government especially bonds and national savings
New IssueThe placing of company shares on the stock exchange.
NIFNote Issuance Facility
NMSNormal 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 AssumptionThe assumption that there are no arbitrage opportunities in market prices.
Noise TraderA trader who randonly buys and sells
Non-Callable Bond??
Nonsystematic RiskRisk that can be diversified away
Normal BackwardationA situation where the futures price is below the expected future spot price
Normal MarketA market where futures prices increase with maturity.
Notional??
Notional PrincipleThe principal used to calculate payments in an interest rate swap. The prinipal is "notional" because it is neither paid nor received.
NPVNet Present Value
Numerical ProcedureA method of valuing an option when no formula is available.
ObligorA person who has an obligation (by a legal binding) to pay off debt.
Off The RunOnce a new security (of any particular maturity) is issued the previously issued security with the same maturity becomes "off the run".
Offer for SaleA method of bringing a company to the market. may be a fixed price or by tender (same as IPO in the UK)
Offer Pricesee Ask Price
Offer RateThe dealers selling price
On The RunThe most recently issued security of any particular maturity.
OPECOrganisation of Petroleum Exporting Countries
Open Cry??
Open InterestThe total number of long posiitons outstanding in a futures contract (equals the total number of short positions).
Open OutcryFace to face trading
OptionThe right to buy or sell an asset.
Option ClassAll options of the same type (call or put) on a particular stock.
Option Dated Forward RateA forward rate (foreign exchange), but the date is more flexible.
Option SeriesAll options of a certain class with the same strike price and expiration date.
OptionsThe 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 BookSETS (Stock Exchange Trading System)
Order Book Officialsee Board Broker
Ordinary ShareThe most common also the riskest type of share
Original Issue Discount??
Out-Of-The-Money OptionEither - 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.
OutrightThe sale or purchase of a currency for delivery on any date other than spot.
Over The CounterDealing outside a trading exchange, for example a currency option purchased from a bank.
OverfundingThe issue of government bonds or treasury bills not for immediate government borrowing needs but as an instrument of monetary control
OvernightTransaction for settlement tomorrow, taken out today.
PackageA derivative that is a portfolio of standard calls and puts, possibly combined with a position in forward contracts and the asset itself.
PARThe nominal value of a security, for example $1000 for US treasury bonds or £100 for UK government bonds
Par Frequency??
Par ValueThe principal amount of a bond
Par YieldThe coupon on a bond that makes its price equal the principal.
Parallel ShiftA movement in the yield curve where each point on the curve changes by the same amount.
Partially Unwound??
PassiveOften used to refer to long only investment
Path-Dependent OptionAn option whose payoff depends on the whole path followed by the underlying variable - not just its final value.
PayoffThe cash realised by the holder of an option or other derivtaive at the end of its life.
PB RatioPrice/Book ratio
PE RatioPrice/Earnings ratio - Ratio of share price to earnings after tax
Pension FundsThe groups that administer pensions schemes.
PerpetualA security without time limit for redemption
Perpetuity??
Physical??
PIBORParis Interbank Offered Rate
PIKPayment in Kind (pic payment)
PlacingA method of bringing a company to the market.
Plain VanillaA term used to describe a standard deal
Portfolio ImmunizationMaking a portfolio relatively insensitive to interest rates.
Portfolio InsuranceEntering into trades to ensure that the value of a portfolio will not fall below a certain level.
Position LimitThe maximum position a trader (a group of traders acting together) is allowed to hold.
PPPPurchasing Power Parity
Preference ShareDividend is paid as a fixed percentage.
PremiaThe plural of risk premium.
Premium Bond??
Prepayment FunctionA function estimating the prepayment of principal on a portfolio of mortgages in terms of other variables.
Pre-Refunded??
Primary MarketMarkets where securities are sold when first issued.
Prime Broker??
PrincipalThe par or face value of a debt instrument.
Principal OnlyA mortgage backed security where the holder receives only principal cash flows on the underlying mortgage.
Private BankingSpecialist banking services for high net worth individuals
PrivatisationConversion of a state run company to a public limited status.
Program TradingA procedure where trades are automatically generated by a computer and transmitted to the trading floor of an exchange.
Promissory NoteA signed promise to pay a sum of money
Prospective DividendThe dividend which has been forecast for its current yield
Protective PutA put option combined with a long position in the underlying.
PSBR??
Purchasing Power ParityThe belief that inflationary differentials between countires are the long-run determininants of currency movements.
Put Bonds??
Put Option??
Put-Call ParityThe 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 BondA bond where the holder has the right to sell it back to the issuer at certain predetermined times for a predetermined price.
Puttable SwapA swap where one side has the right to terminate early.
QuantoA derivative where the payoff is defined by variables associated with one currency but is paid in another currency.
RAFTRevolving Acceptance Facility by Tender
Rainbow OptionAn option whose payoff is dependent on two or more underlying variables.
Range-Forward ContractThe combination of a long call and short put or the combination of a short call and long put.
Rating AgencySuch as Moodys, Standard & Poors and Fitch which rate the default risk on corporate and soverign debt.
Real Interest RateThe return on an investment once the effect of inflation is taken into account.
RebalancingThe process of adjusting a trading position periodically. Usually the purpose is to maintain delta neutral.
RedeemBuy back or pay off.
RedeemableApplied to a preference share or bond - may be redeemed by the issuer on terms stated at outset.
Redemption??
Redemption Date??
Redemption Yield??
Registered??
Repayment MortgageMortgage on which capital and interest are gradually repaid.
Repo??
Repo RateThe rate of interest in a repo transation.
Repurchase AgreementSelling securities and agreeing to buy then back at a slightly higher price.
Reset DateThe date in a swap or cap or floor when the floating rate for the next period is set.
Residual Risk??
Retained EarningsPast profits which the company has not distributed to shareholders.
Reversion LevelThe level that the value of a market variable (e.g. an interest rate) tends to revert.
Revolver BondA Revolver Bond is a variant of a regular Bond or other debt security.
Revolving CreditA commitment to lend on a recurring basis on pre-defined terms
RhoRate of change of the price of a derivative with the interest rate.
Rights IssueAn 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.
RiskGovernment transactions are regarded as the safest and therefore have the lowest rates of interest
Risk Free RateThe rate of interest that can be earned without assuming any risk.
Risk Management??
Risk Neutral ValuationThe 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 WorldA world where investors are assumed to require no extra return on average for bearing risks.
Risk PremiumThe expected rate of return above the risk free interest rate.
Risk Weighted AssetsRWA is the aggregate measure of different risk factors affecting the evaluation of financial products.
Roll Backsee Backwards induction
Rolling OverRenewal of a bank loan with alteration of interest rate as per the agreed formula, for example LIBOR + 1%
Rolling SettlementFor 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
RolloverIn exchange traded derivatives, rolling a position from one expiry or delivery month to the next.
RORACReturn On Risk Adjusted Capital
RUFRevolving Underwriting Facility
Running YieldFlat Yield
SAEFStock Exchange Automated Execution Facility
Sale By Tender??
Samurai BondsA yen bond issued in Japan by non residents
Savings RatioThe proportion of income which is saved
ScalperA trader who holds positions for a very short period of time.
Scenario AnalysisAn analysis of the effects of possible alternative future movements in market variables on the value of a portfolio.
Scholes-MertonThe Nobel prize winning revision of the Black-Scholes option pricing model.
Scrip Issuesame as bonus issue
SEAQStock Exchange Automated Quotation System for International Securities
SEATS??
Secondary MarketsThe buying and selling of a security after its primary issue
Secured Bond??
Securities and Exchange CommissionUS body controlling regulation of the market (Securities and Exchange Commission)
SecuritisationThe 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
SeriesAll options of the same class, exercise price and expiry date
SETSStock Exchange Trading System -
Settlement DateWhen the money for a given trade is due to be paid (and the securities handed over)
Settlement Day??
Settlement PriceThe 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.
SharesShares are shareholdings in companies with reward by way of dividends and capital gains (called equities)
ShortThe term going short is when you intentionally sell something you don't own.
Short CoverBuying a security that you were previously short
Short HedgeA hedge where a short futures poisition is taken.
Short PositionThe agreement to sell. A position involving the sale of an asset.
Short RateThe interest rate applying for a very short period of time.
Short SellingSelling shares that have been borrowed from another investor
Short Squeeze??
Shout OptionAn option where the holder has the right to lock in a minimum value for the payoff at one time during its life.
Sight BillA bill of exchange payable on acceptance
Sinking FundPayments 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 CommoditiesSugar, coffee, cocoa etc as opposed to metals
Soft Currencies??
SolventYou are capable ot meeting your financial obligations
Special Purpose Vehicle??
SpecialistAn individual responsible to managing limit orders on some exchanges.
SplitExisting shares are reorganised "split" into more shares for example 2 shares @ 25p are exchanged for 1 share @ 50p
SpotToday's rate for settlement in 2 days
Spot Interest Ratesee XZero-Coupon Interest Rate
Spot PriceThe price for immediate delivery.
Spot VolatilitiesThe volatilities used to price a cap when a different volatility is used for each caplet.
SpreadDifference between a bid and an offer rate. More generally between one rate and another
Spread TradeTreasury bond vs Corporate bond
Spread TransactionA position in two or more options of the same type.
StagOne who applies for a new issue in the hope of selling for a premium - no real interest in the share
Static HedgeA hedge that does not have to be changed once it has been initialised
Step-Up SwapA swap where the principal increases over time in a predetermined way.
Stochastic VariableA variable whose future value is uncertain
StockStock or Equity ??
Stock BorrowingWhen a dealer has a short position, an alternative to buying the stock is to 'borrow' it from another dealer.
Stock DividendA dividend paid in the form of additional shares.
Stock IndexAn index monitoring the value of a portfolio of stocks.
Stock Index FutureFutures on a stock index.
Stock Index OptionAn option on a stock index.
Stock Lendingstock borrowing
Stock OptionOption on a stock
Stock SplitThe conversion of each existing share into more than one new share
StocksFixed interest securities, for example bonds, debentures, preference shares
Stop-Loss OrderAn order to a broker to close out a position and take the profits to date whenever a given price level is reached
Storage CostsThe costs of storing a commodity.
StraddleA 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.
StrangleA long position in a call and a put with different strike prices.
StrapA long position in twp call options and one put option with the same strike price.
Stress TestingTesting of the impact of extreme market moves on the value of a portfolio.
Strike PriceThe price at which you can buy or sell the security (usually stocks).
StripA long position in one call option and two put options with the same strike price.
Stripped BondsCoupon stripping
StripsStripped government bonds in the US - Separate trading of Registered Interest and Principal Securities
Structured Products??
Subordinate DebtA bond that, in the event of liquidation, can claim only after other senior debts has been met
SubpoenasA 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.
SuperdotAutomated execution system on the New York Stock Exchange
SwapAn agreement to exchange cash flows in the future according to a prearranged formula.
Swap RateThe fixed rate of an interest rate swap that causes the swap to have a value of zero.
SwapsExchange of debt obligations between two parties either exchange of currencies either fixed/floating or floating/fixed and sometimes both.
SwapsWireCreated with the intention of providing a new way to achieve confirmation of OTC interest rate swaps.
SwaptionAn 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.
SWIFTSociety for Worldwide Interbank Financial Telecommunications. Banks messaging system
Swing OptionEnergy 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.
Syndicatemanagers, underwriters and selling agents of a bond or bank loan
Synthetic Bond??
Synthetic CDO??
Synthetic OptionAn option created by trading the underlying asset.
Systematic RiskRisk that cannot be diversified away.
Take-And-Pay Optionsee Swing Option
TALISMANTransfer Accounting Ledgement for Investors Stock Management for Principals - the SE Computerised Settlement System (UK). Being replaced by CREST
Tap StockIn general in bond markets further issue of a previously issued bond.
TenderA 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
Term SheetThe relationship between interest rates and their maturities.
Term Structure of Interest RatesThe relationship between interest rates and their maturities.
Terminal ValueThe value at maturity
ThetaRate of change of the price of an option (or other derivative) with time
TicksSmallest price movement of a contract, for example 0.01 or 1/32
Tier One Capital??
Tier One Equity??
Tier Two Capital??
Time Decaysee Theta
Time ValueThat part of an option premium which is not the intrinsic value.
TombstoneFormal notice in the press of a syndicated loan, bond issue, commercial paper programme
TOPICTeletext Output of Price Information by Computer - the standardised display of SEAQ information (UK)
Total Return SwapA swap of the return on one portfolio of assets for the return on another portfolio of assets.
Touch PricesThe lowest bid price and lowest offer price for a particular stock or share
Trade BillA bill of exchange not endorsed by a bank and not eligible for rediscount at the central bank
Trade Capture??
Trade DateThe date a trade is agreed as opposed to settled
Trade Flow??
Trade Life Cycle??
Traded OptionAn option to buy or sell a share/currency/index etc contract later at a price agreed today.
TradePointA UK share trading system using computerised order matching. (introduced Sept 1996)
TrancheFurther (large) issue of an existing bond to meet the needs of the market
TranchetteFurther (small) issue of an existing bond to meet the needs of the market
Transaction CostsThe cost of carrying out a trade (commissions plus the difference between the price obtained and the midpoint of the bid-offer spread).
Treasury BillA short-term non coupon bearing instrument issued by the government to finance its debt. This is how governments can raise money.
Treasury BondA long-term coupon bearing instrument issued by the government to finance its debt.
Treasury Bond FutureA futures contract on Treasury Bonds
Treasury Notesee Treasury Bond (Treasury Notes have maturities of less than 10 years)
Treasury Note Futurea futures contract on Treasury Notes
TreeThe representation of the evolution of the value of a market variable for the purpose of valuing an option or other derivatiave.
Trinomial Tree??
UndatedPerpetual
Underlying VariableA variable that the price of an option or other derivatiave depends on
Unit Trusta portfolio of holdings in various companies, divided into units which are bought and sold directly. An 'open ended' fund for example.
Unsecured Bond??
Unsettled CashThis is the cash amount before the trade has actually been settled.
Unsystematic Risksee Nonsystematic Risk
UnwindTo reverse a transactions by using an offsetting transaction
Up and In OptionAn option that comes into existence when the price of the underlying asset increases to a certain level.
Up and Out OptionAn option that ceases to exist when the price of the underlying asset increases to a certain level.
USMUnlisted Securities Market
Value at RiskA loss that will not be exceeds at some specified confidence.
VanillaA term used to describe a standard deal
Vanilla SwapFloating for Fixed
Variance RateThe square of volatility
Variance-Covariance MatrixA matrix showing variances of and covariances between a number of different market variables.
Variation MarginAn 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
VegaRate of change in the price of an option (or other derivative) with volatility.
Vega Neutral PortfoiloA portfolio with a vega of zero.
Venture Capitalcapital provided for high risks which would not normally attract conventional finance
Vix IndexA measure of the implied volatility of the S&P index options.
VolatilityA measure of the uncertainty of the return realised on an asset.
Volatility MatrixA table showing the variation of implied volatilities with strike price and time to maturity.
Volatility SkewA term used to describe the volatility smile when it is nonsymmetrical
Volatility SmileThe variation of implied volatility with strike prices.
Volatility SwapSwap 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 StructureThe variation of implied volatility with time to maturity.
VRNVariable rate note. A floating rate note where the margin above LIBOR is not fixed but reset at intervals
WACWeighted Average Cost
WarrantA 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 CostThe average cost you have bought an asset at.
White KnightIn a takeover situation a more acceptable bidder may be sought
White SquireWhite Squire
Wholesale MoneyThe borrowing and lending of large sums of money - usually between banks, large companies and the institutions
Wild Card PlayThe right to deliver on a futures contract at the closing price for a period of time after the close of trading.
Writing an OptionSelling an option. A margin is paid to the Clearing House.
XD DividendStands for Ex-dividend and means that the buyer does not acquire the right to the recently announced dividend.
XREx-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 BondA dollar bond issued in the US by non residents
YardForeign exchange term for 1000 million
YieldFlat Yield
Yield CurveA 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 MaturityThe annualised rate of return if a bond is held to maturity.
Zero Coupon BondA bond issued without interest payments but at a deep discount.
Zero Coupon Interest RateThe interest rate that would be earned on a bond that provides no coupons.
Zero Coupon Yield CurveA 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
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
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
??

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