Other Glossary

Abandon Option	An option holder chooses not to exercise their option
Absolute Risk	The volatility of total returns
Acceptance	Short-term debt instruments, drawn on a bank for future payment
Acceptance House	Guarantees payment of trade bills used to finance trade deals and goods in shipment
Accepting	Signing a Bill of Exchange signifying an agreement to pay. Subsequent or alternative signature by a bank virtually guarantees payment.
Account	??
Accreted Value	??
Accreting Swap	A swap in which the principal increases in each time period.
Accrual Swap	An interest rate swap where interest on one side accrues only when a certain condition is met.
Accrued Interest	Interest that has been earned but not yet paid
Actuary	A statistician who calculates risk
Administrator	An Administrator is responsible for ensuring the efficient day-to-day operation of a fund including the accounting.
Alpha	A measure of performance on a risk adjusted basis.
Alternative Investment Market	A market dedicated to smaller companies.
Alternative Minimum Tax	??
American Depository Receipt	The form in which foreign shares can be traded in the US without a formal listing.
American Option	An option that can be exercises at any time during its life.
Amortisation	Repayment of the principal on a loan or bond installments over a period of time.
Amortising	??
Amortising Swap	A swap where the notional principal decreases in a predetermined way as time passes.
Annual Percentage Rate	Used to describe the true cost of the money borrowed on mortgages, loans and credit cards.
Annual Yield	??
Annuity	Something that pays regular cash flows at fixed periods over a given period of time.
APACS	Controlling cheque clearing, BACS and CHAPS in the UK
Arbitrage	Taking advantage of an anomaly in prices or rates in different markets.
Arbitrageur	A person who engages in arbitrage opportunities.
Article 65	Article for the Japanese Financial Code - prevents commercial banks from engaging in some investment banking
Asian Option	An option with a payoff dependent on the average price of an underlying asset during a specified period.
Ask Price	The price that a dealer is offering to sell a security.
Ask Rate	Offer Rate
Asset Backed Securities	??
Asset Pricing	??
Asset-Or-Nothing Call Option	An option that provides a payoff equal to the asset price if the asset price is above the strike price and zero otherwise.
Asset-Or-Nothing Put Option	An option that provides a payoff equal to the asset price if the asset price is below the strike price and zero otherwise.
Assets	The side of the balance sheet dealing with lending
Assurance	The business of life insurance and pensions
As-You-Like-It Option	Chooser Option
At-Best Order	An order to a broker to buy and or sell a contract at the best price available.
At-The-Money Option	An option in which the strike price equals the price of the underlying asset.
Auction Market Preferred Stock	??
Audit	Inspection of a companys books by independent accountants
Automated Clearing House	??
Automated Pit Trading	A computerised trading system used at the LIFFE in addition to open cry
Automatic Exercise	When the clearing house automatically exercises in-the-money options at expiry.
Average-Price Call Option	An option giving a payoff equal to the greater of zero and the amount by which the average price of the asset exceeds the strike price.
Average-Price Put Option	An option giving a payoff equal to the greater of zero and the amount by which the strike price axceeds the average price of the asset.
Average-Strike Option	An option that provides a payoff dependent on the difference between the final asset price and the average asset price.
Back Office	Accounting and Settlements
Back-Testing	Testing a value-at-risk or other model using historic data.
Backwardation	When the spot or near term price of a commodity is higher than the forward rate.
Backwards Induction	A procedure for working from the end of a tree to its neginning in order to value an option.
Bank Bill	A Bill of Exchange accepted by a bank on the central bank's "eligible" list. The central bank itself would rediscount a bill of this type. Also called an Eligible Bill
Bankers Acceptance	Bills of exchange acceppted by large banks
Bankers Automated Clearing Services	??
Barrier Option	An option whose payoff depends on whether the path of the underlying asset has reached a barrier (i.e. a certain predetermined level).
Base Currency	??
Base Rate	??
Basis	The difference between the spot price and the futures price of the commodity.
Basis Point	One hundredth of a percent (0.01%)
Basis Risk	When relationships between products used to hedge each other change or break down
Basis Swap	Swap where cash flows determined by one floating reference rate are exchanged for cash flows determined by another floating reference rate.
Basket Option	An option that provides a payoff dependent on the value of a portfolio of assets.
Bear	A pessimist - selling securities in the belief of a falling stock and bond market, hence a "Bear" market
Bear Market	A falling market
Bear Spread	A short position in a put option with a strike price X1 combined with a long position in a put option with strike price X2 where X2 > X1. (A bear spread can also be created with call options).
Bearer Bond	A bond payable to whoever is in possession - that is no central register
Bed and Breakfast	Selling shares one day and buying them back the next - at the end of the tax year to maximise Capital Gains Tax allowance or claim losses against profits
Bermudan Option	An option that can be exercides on specified dates during its life.
Beta	A measure of systematic risk of an asset.
Bid Price	The price that a dealer is prepared to pay for an asset.
Bid Rate	Rate of interest offered for deposits in banking. Generally the dealer's buying price for equities, bonds, foreign exchange etc
Bid-Ask Spread	The amount by which the ask price exceeds the bid.
Bid-Offer Spread	same as Bid-Ask Spread
Big Bang	Deregulation of the UK Stock Market 27 October 1986. New regulation and an automated price quotation system. The day when minimum commissions were abolished
Bill	A short-term (3 months or so) instrument which pays interest to the holder and can be traded. Some bills do not pay interest but are issued at a discount to their face value.
Bill of Exchange	A signed promise to pay by a receiver of goods or services and kept by the supplier.
Binary Option	Option with discontinuous payoff; for example a cash-or-nothing option or an asset-or-nothing option.
Binomial Model	A model where the price of an asset is monitored over successive short periods of time. In each short period of time it is assumed that only two price movements are possible.
Binomial Tree	A tree that represents how an asset price can evolve under the binomial model.
Blacks Approximation	An approximate procedure developed by Fischer Black for valuing a call option on a dividend paying stock.
Blacks Model	An extension of the Black Scholes model for valuing European Options on futures contracts.
Black-Scholes Model	The original European Stock Option pricing model written by Black and Schole in 1972
Blue Chip	Large established companies. The most highly regarded shares.
Board Washing	The individual who handles limit orders in some exchanges. The board broker makes information on outstanding limit orders available to other traders.
BOBL	Short name for the short-term German government bond contract on the DTB
Bond	An instrument that pays a fixed amount of interest to the holder.
Bond Factor	??
Bond Ladder	??
Bond Option	An option where a bond is the underlying asset.
Bond Provisions	??
Bond Stripping	??
Bonos	Spanish Government Bonds
Bonus Issue	A free issue of shares to existing shareholders
Bonus Value	??
Book Entry	??
Book Value	The value of an asset as entered in a company's balance sheet
Bootstrap Method	A procedure for calculating the zero-coupon yield curver from market data.
Boston Option	see Deferred payment option
Break Forward	see Deferred payment option
Broker	An individual (or firm) that acts as an intermediary putting buyers and sellers together for a brokerage fee.
Building Society	Institutions whose primary function is to accept the savings of small investors and channel them to house buyers in return for the security of a mortgage on the property.
Bull	An optimist, buying securities in the belief of a rising (stock and bond) market, hence a bull market
Bull Market	A rising market
Bull Spread	Buying a call option (a long position in a call) with a strike X1 combined with selling a call (short position in a call) with a strike price X2 where X2>X1 (a bull spread can also be created using put options).
Bullet Repayment	The whole of a bond or bank loan is repaid at maturity (instead of staged payments in the last few years)
Bundesbank	The German Central Bank
Cable	Shorthand for dollar/sterling rate
Call Date	??
Call Money	Money lent by banks to other banks or discount houses which can be recalled at noon each day
Call Protection	??
Call Risk	??
Call Schedule	??
Callable Credit Products	??
Cancelable Swap	Swaps that can be cancelled by one side of prespecified dates.
Cap	An agreement with a counterparty which sets an upper limit to interest rates for the cap buyer for a stated time period.
Cap Rate	The rate determining payoffs in an interest rate cap
Capital Adequacy	The need to maintain adequate capital to cover counterparty risk and position risk
Capital Asset Pricing Model	A model relating the expected return on an asset to its beta.
Capital Gains Tax	A tax on the profit when you sell (or 'dispose of') something (an 'asset') that's increased in value.
Capital Growth Bond	Issue price at par (100%) with redemption at a multiple of that amount.
Capital Markets	The market for medium and long term securities
Capital Ratio	The ratio of a banks primary capital to a weighted value of assets
Capitalisation	Market capitalisation of a company is the number of shares multiplied by the current price
Capitalisation Issue	An issue where funds from a company's reserves are converted into shares and offered free of charge to shareholders.
Caplet	One component on an interest rate cap
Cash Flow Mapping	A procedure for representing an instrument as a portfolio of zero-coupon bonds for the purpose of calculating value at risk.
Cash Ratio	The proportion of a bank's liabilities which it considers prudent to keep in the form of cash.
Cash Settlement	Where the product is settled at expiry, based on the differential between the fixed/guaranteed price and the underlying instrument. Procedure for settling a futures contract in cash rather than by delivering the underlying asset.
Cash-Or-Nothing Call Option	An option that provides a fixed predetermined payoff if the final asset price is above the strike price and zero otherwise.
Cash-Or-Nothing Put Option	An option that provides a fixed predetermined payoff if the final asset price is below the strike price and zero otherwise.
CDO	A security based on a mix of debt and credit risk. Different laters often referred to as tranches (or slices) each having different risk and maturities.
Central Counterparty Model	Set up by the Stock Exchange to remove credit risk when buying and selling.
Certificate of Deposit	A tradeable deposit issued by banks and building societies.
Certificates of Participation	A type of municipal bond that are often used to finance capital improvement projects or equipment.
CHAPS	Clearing House Automated Payments System - for electronic clearing of payments the same day (UK)
Cheapest-To-Deliver Bond	The bond that is cheapest to deliver in the Chicago Board of Trade bond futures contract.
Chinese Wall	A theoretical barrier between different sections of a firm to avoid fraud (i.e. conflicts of interest or insider dealing). One part of the firm may not pass sensitive information to another if it is against a client's interest.
CHIPS	Clearing House Interbank Payments - electronic bank clearing in New York
Chooser Option	An option where the holder has the right to choose whether it is call or a put at some point during its life.
CIRCUS	Combined Interest Rate and Currency Swap
Clean Price	Price of a bond not including the accrued interest element. This is the quoted price. The cash price paid for the bond (or dirty price) is calculated by adding the accrued interest to the clean price.
Clearing Bank	Banks which are part of the clearing system which significantly reduces the number of interbank payments.
Clearing House	A firm that guarantees the performance of the parties in an exchange-traded derivatives transaction. Central Body guaranteeing contracts in a traded options/futures market. Also known as clearing corporation.
Clearing Margin	A margin posted by a member of a clearing house.
CLO	Collateralized Loan Obligation - is a single security backed by a pool of debt.
Closing Out	For futures market - taking the opposite contract for example having previously bought 100 tons of cocoa for June delivery, the buyer now sells 100 tons for the same delivery (or vice-versa)
CME	Chicago Mercantile Exchange
CMO	Collaterized Mortgage Obligation - A mortgage backed security where investors are divided into classes and there are rules for determining how principal repayments are channeled to the classes.
Collar	see Interest Rate Collar
Collateral	??
Collaterised	??
Combination	A position involving both calls and puts on the same underlying asset.
Commercial Banking	The classic banking business of taking deposits and lending money, either retail or wholesale
Commerical Paper	An unsecured IOU issued by large companies and banks.
Commission Brokers	Individuals who execute trades for other people and charge a commission for doing so.
Commodity Swap	A swap where cash flows depend on the price of a commodity.
Complex Power Duals	??
Compound Option	An option on an option. The holder (buyer) has an option to purchase another option on a pre-set date at a pre-agreed premium.
Compounding Frequency	This defines how an interest rate is measured.
Compounding Swap	Swap where interest compounds instead of being paid.
Concert Party	A group acting together (secretly) in a takeover situation for example three people each buy 2.9% of shares to avoid no longer being able to hide behind nominee status.
Confirmation	Contract confirming verbal agreement between two parties to a trade in the over-the-counter market.
Consolidation	Reorganising share holdings so that, for example 10 shares at 10p are replaced by a one £1 nominal
Constant Maturity Swap	A swap where a swap rate is exchanged for eother a fixed rate or a floating rate on each payment date.
Constant Maturity Treasury Swap	A swap where the yield on a Treasury Bond is exchanged for either fixed rate or floating rate on each payment date.
Consumption Asset	An asset held for consumption rather than investment
Contango	A situation where the futures price is above the expected future spot price.
Continuous Compounding	A way of quoting interest rates. It is the limit as the assumed compounding interval is made smaller and smaller.
Contract for Difference	A derivative product to trade the price differential over an indefinite time period.
Contract Size	The unit of trading on a derivatives contract.
Control Variate Technique	A technique that can sometimes be used for improving the accuracy of a numerical procedure.
Convenience Yield	A measure of the benefits from ownership of an asset that are not obtained by the holder of a long futures contract on the asset.
Conversion Factor	A factor used to determine the number of bonds that must be delivered in the bond futures market.
Convertible	A convertible bond may be converted later into equity, some other bond or even a commodity
Convertible Rate FRN	An issue which carries the option to convert either from an initial floating rate note into a fixed rate bond or from a fixed rate bond into a floating rate note.
Convexity	A measure of the curvature in the relationship between bond prices and bond yields.
Convexity Adjustment	An overworked term. It can refer to the adjustment necessary to convert a futures interest rate to a forward interest rate.
Corporate Bond	??
Corporate Finance	The department of an investment bank dealing with takeovers, mergers and strategic advice to companies
Cost of Carry	The storage costs plus the cost of financing as asset minus the income earned on the asset.
CounterParty	The opposite side in a financial transaction.
Coupon	Interest payment made on a bond.
Coupon Stripping	Detaching the coupons from a bond and selling the coupons and the principal as individual zero coupon bonds
Cover	An abbreviation of "short cover".
Covered Call	A short position in a call option on an asset combined with a long position in the asset.
Covered Warrant	A warrant issued by a party other than the originator or issuer of the underlying asset
Covered Writing	Where an option is sold against an existing position.
Credit Derivative	A derivative whose payoff depends on the creditworthiness of the one or more entities
Credit Enhancement	??
Credit Ratings	A measure of the creditworthiness of a bond issue.
Credit Risk	The risk that a loss will be experienced because of the default by the counterparty in a derivatives transaction.
Credit Spread	The interest rate spread between 2 debt issues of similar duration, maturity etc.
Credit Spread Option	Option whose payoff depends on the spread between the yields earned on two assets.
Credit Valuation Adjustment	This is the market value of the counterparty credit-risk.
CREST	The new UK Electronic settlement registering system introduced in July 1996.
CTD	Cheapest To Deliver bond
Cum Dividend	Means the buyer will get the recently announced dividend.
Cumulative	Applied to a Preference Share - if dividend is missed it is still owed to the holder.
Currency Risk	The risk of losses resulting from movements in currency exchange rates.
Currency Swap	??
Currency Warrants	??
Current Yield	??
CUSIP	??
Custodian	??
Cyclical Stock	The share prices of these companies move dramatically (up and down) relative to the economy.
Cylinder	Name used for a collar in currency markets.
Dated Date	??
DAX	An index of 30 top German shares traded on the Frankfurt exchange.
Day Count	A convention used for quoting interest rates.
Day Trade	A position opened and closed on the same day.
Dealing Spread	The difference between a trader's bid and offer price.
Debenture	A long-term bond issues by a UK company and secured on fixed assets.
Deep Discount Bond	This is a bond with issue price significanly below maturity price, due to lack of coupon or a coupon below the market rate.
Default	??
Defensive Stock	The share prices of these companies does not move dramatically (up and down) relative to the economy.
Deferred Payment Option	An option where the price paid is deferred until the end of the option's life.
Deferred Swap	An agreement to enter into a swap at some time in the future.
Delivery	??
Delta Hedging	A hedging scheme that is designed to make the price of a portfolio of derivatives insensitive to small changes in the price of the underlying asset.
Delta Neutral Portfolio	A portfolio with a delta of zero so that there is no sensitivity to small changes in the price of the underlying asset.
Depository Receipt	Certificates which represent ownership of a given number of company's shares which can be listed and traded separately from the underlying shares (eg ADRs and GDR)
Depreciation	An accounting term which allows for the run-down in values of a company's assets.
Derivatives	An instrument whose price depends on, or is derived from, the price of another asset.
Devaluation	Term usually applies to currencies, which means simply a one-off loss in value (fall in price) of the currency concerbed.
Diagonal Spread	A position in two calls where both the strike prices and times to maturity are different (this can also be created with put options).
Differential Swap	A swap where a floating rate in one currency is exchanged for a floating rate in another currency and both rates are applied to the same principal.
Dilution	The reduction in earnings per share caused by the creation of new shares.
Dirty Price	Bond prices including the accrued interest element.
Discount	The margin by which the purchase price is cheaper than the redemption price
Discount Bond	see Zero-coupon bond
Discount Broker	A broker who offers a no-frills, dealing-only service for a cheap price.
Discount House	Takes the liquid money of the banking system and uses it to discount bills of exchange but Treasury Bills, etc.
Discount Instrument	An instrument such as a Treasury Bill that provides no coupon.
Discount Margin	??
Discount Rate	The annualised dollar return on a Treasury Bill or similar instrument expressed as percentage of the final face value.
Discounting	Buying / Selling a security at less than face value.
Disintermediation	Direct market borrowing or lending by companies without going through a bank.
Dividend	A cash payment made to the owner of a stock (or equity)
Dividend Paying Stock	??
Dividend Yield	The annual percentage return on a share price represented by the current dividend - usually gross.
Down-and-In Option	An option that comes into existence when the price of the underlying asset falls to a certain level.
Down-and-Out Option	An option that ceases to exist when the price of the underlying asset falls to a certain level.
Downside Risk	The risk of making a loss on a position or an investment.
Duration	A measure of the average life of a bond.
Duration Matching	A procedure for matching the durations of assets and liabilitites in a finanical institution.
Dynamic Hedging	A procedure for hedging an option position by periodically changing the position held in the underlying assets.
Early Exercise	Exercising before the maturity date.
Earnings Yield	Earnings per share (after tax) expressed as a percentage of share price
EBITDA	Earnings Before Interest, Tax, Depreciation and Amortisation
ECGD	Export Credit Guarantee Department - government agency which provides trade insurance for exporters.
ECU	European Currency Unit - a weighted basket of currencies to give an "average" value especially against the dollar.
EDR	Euro Depositary Receipt
Efficient Market Theory	Theory that asset prices reflect currently available information and fully discount expected future cash flows.
EFTPOS	Electronic Funds Transfer at Point Of Sale - a scheme which allows customers to pay retailers with an electronic card. The funds are automatically debited from a client's account and credited to the retailer's.
Eligible Bill	Bills of Exchange eligible for sale to a central bank when acting as "lender of last resort".
Embedded Option	An option that is an inseparable part of another instrument
Empirical Research	Research based on historical market data.
EMS	European Monetary System - general agreement on monetary cooperation. Includes official use the Ecu.
EMU	European Monetary Union
Endowment Mortgage	Mortgage linked to a life-assurance scheme.
EPS	Earnings Per Share
Equity	General terms of shares.
Equity Collar	??
Equity Convertible	Bond which can be converted into the shares of the issuing company.
Equity Swap	A swap where the return on an equity portfolio is exchanged for either a fixed or a floating rate of interest.
ERM	Exchange Rate Mechanism
ETF	Exchange Traded Fund
Eurex	The merged German-Swiss electronic derivatives exchange.
EURIBOR	Rate at which banks in the eurozone borrow from one another.
Euro	The European single currency
EuroClear	Secondary market clearing and settlement system
EuroCurrencies	Any currency held by banks, companies or individuals outside its country of origin.
EuroCurrency	A currency that is outside the formal control of the issueing country's monetary authorities.
EuroDollar	A dollar held in a bank outside the US.
EuroDollar Futures Contract	A futures contract written on a Eurodollar receipt.
EuroDollar Interest Rate	The interest rate on a eurodollar deposit
EuroMarket	The offshore international financial market
EuroNext	??
EuroNote	Short-term security denominated in a Eurocurrency.
European Option	An option that can only be exercised at the end of its life.
EWMA	Exponentially Weighted Moving Average
Exchange Option	An option to exchange one asset for another
Exchange Rate	The price at which one currency can be exchanged for another.
Exchange Traded	A transaction where a specific instrument is bought or sold on a regulated exchange
Ex-Dividend	see XD-Dividend
Ex-Dividend Date	When a dividend is declared, an ex-dividend date is specified.
Executive Stock Option	A stock option issued by a company on its own stock and given to its executives as part of their renumeration.
Exotics	??
Expectations Theory	The theory that forward interest rates equal expected future spot interest rates.
Expected Value of a Variable	The average value of the variable obtained by weighting the alternative values by their probabilities.
Expiry Date	The end of the life of the contract.
Exponential Weightings	A weightings scheme where the weight given to an observation depends on how recent it is.
Exponentially Weighted Moving Average Model	A model where exponential weighting is used to provide forecasts for a variable from histrical data.
Extendable Swap	A swap whose life can be extended at the option of one side to the contract.
Factoring	Buying trade debts on a regular basis to assist cash flow - usually done by subsidiaries of banks.
FASB	Financial Accounting Standards Board.
Federal Reserve	The US monetary authority which plays a role similar to that of the Bank of England.
FedWire	Electronic payments system between Federal Reserve banks in the US
Fill-or-Kill	An order on an exchange which is either executed in its entirety at the stipulated price or cancelled.
Finance Houses	Institutions which specialise in funding hire-purchase agreements
Financial Intermediary	A bank or other financial institution that facilitates the flow of funds between different entities in the economy.
First Coupon Date	??
FIX	Electronic Communication Protocol
Fixed Commissions	??
Fixed Exchange Rates	Currencies with set values against each other which vary only in times of crisis when one or more currencies are revalued or devalued.
Flat Volatility	The name given to a volatility used to price a cap when the same volatility is used for each caplet.
Flat Yield	The annual percentage return on a bond taking into account the buying price, for example if £100 nominal worth of an 8% bond is bought for $50, the yield is 16%. Also called the running and interest yield (see redemption yield)
Flex Option	An option traded on an exchange with terms that are different from the standard options traded by the exchange.
Flip Flop FRN	A Floating Rate Note that has a very long final maturity or even a perpetual issue with an option to convert after a fixed period into a Short Dated FRN.
Floating Exchange Rates	Currencies whose values against each other are set by market forces.
Floating Rate	A loan with the interest rate varied at agreed intervals, linked to a base rate for example LIBOR
Floating Rate Note	A medium to long term debt obligation with a variable interest rate which is adjusted periodically.
Floor	An agreement with a counterparty which sets an upper limit to interest rates for the cap buyer for a stated time period.
Floor Rate	The interest rate in an interest rate floor agreement.
Floor-Ceiling Agreement	see Interest Rate Collar
Floored Floaters	??
Floorlet	One component of a Floor
Foreign Currency Option	An option on a foreign exchange rate.
Forfaiting	Raising money by selling a company's invoices
Forward Contract	A contract to buy or sell a commodity or security for future delivery at a price agreed today
Forward Exchange Rate	The forward price of one unit of a foreign currency
Forward Market	Market in which currencies are traded months or years ahead.
Forward Price	The delivery price in a forward contract that causes the contract to be worth zero.
Forward Rate	A rate agreed now for a future purchase or sale of a currency.
Forward Rate Agreement	Agreement that a certain interest rate will apply to a certain principal amount for a certain time period in the future.
Forward Start Option	An option designed so that it will be at the money at some point in the future.
Forward Swap	see Deferred Swap
Forward-Forward Agreement	Arrangement to lend or borrow a set sum at a date in the future for a set period at a set rate.
FOX	London Futures and Options Exchange (commodities)
Fraud	??
Freddie Mac	Federal National Mortgage Association (FNMA)
FSA	Financial Services Authority
FTSE Index	Financial Times ?? Index that tracks the share prices of 100 leading company.
Fungible	Exchangeable - for example, a contract of one futures exchange and another will be identical. Can be opened in one and closed in the other exchange (or vice versa). Also used for further issues of bonds on exactly the same terms (and accrued interest) as those issued earlier.
Futures	Instruments which give the buyer the right to purchase a commodity at a future date
Futures Contract	Similar to forward but not expected to go to delivery as the position will be closed out with the opposite contract.
Futures Option	An option on a futures contract.
Futures Price	The delivery price currently applicable to a futures contract
Gamma	The rate of change of delta with respect to the underlying
Gamma Neutral Portfolio	A portfolio with a gamma of zero
Gearing	Carrying out financial transactions on the basis of a deposit or borrowed money (US term is leverage).
Gearing Ratio	Ratio of equity and long term debt.
Gilt Edged Security	A bond issued by the UK government.
Gilt Warrants	??
Gilts	Bonds issued by the UK government.
Global Bond	International bond placed at the same time in the euro and one or more domestic markets ???
Global Depository Receipt	A form in which foreign shares can be traded outside their domestic markets.
Globalisation	The movement to integration of world markets regardless of national boundaries
GLOBEX	??
Golden Hello	Payment made to an employee of a rival firm to entice him or her to transfer.
Goodwill	An accounting term which describes the intangible assets of a company (e.g. brand names, skillful staff etc)
Greeks	Hedge parameters such as delta, gamma, vega, theta and rho
Gross Redemption Yield	The return which an investor will receive on a bond, allowing for both interest and capital growth as a percentage of the bonds price.
Hard Currencies	??
Harrison and Kreps	??
Hedge	A trade designed to reduce risk
Hedge Fund	A fund which takes both long and short positions
Hedge Ratio	The ratio of the size of a position in a hedging instrument to the size of the position being hedged.
Hedger	A person who enters into hedging trades.
Hedging	A technique for limiting risk.
High Yield Bonds	??
Historic Volatility	A volatility estimated from historical data
Historical Dividend	The total dividend the company paid for its last financial year
Historical Simulation	A simulation based on historical data
Holiday Calendar	Calendar defining which days are holidays for the purpose of determing payment dates in a swap.
Hybrid Products	??
IDB	see Inter-Dealer Broker
IMPA	International Primary Markets Association (for Eurobond dealers)
Implied Distribution	A distribution for a future asset price implied from option prices
Implied Volatility	Volatility implied from an option price using the Black-Scholes or a similar model
Implied Volatility Trees	??
Index Amortizing Swap	see Indexed Principal Swap
Index Arbitrage	An arbitrage involving a position in the stocks comprising a stock index and a position in a futures contract on the stock index.
Index Futures	A futures contract on a stock index or other index.
Index Option	An option contract on a stock index or other index
Indexed Principal Swap	A swap where the principal declines over time.
Indices	like the S&P 500, CAC 40, FTSE 100 etc
Ineligible Bank Bills	Bills of exchange accepted by a bank, but one not on the central bank's list
Inflation	whether a given rate of interest represents good value or not will depend on the rate of inflation
Initial Margin	Initial deposit required by a Clearing House (as opposed to variation margin)
Initial Public Offering	American term for Offer for Sale
Insider Dealing	The buying and selling of securities by someone with inside information.
Insolvent	Unable to meet your financial obligations/debts.
Insurance	If contrasted with assurance, this is the business other than life assurance
Insured Bonds	??
InterBank Market	Bank lending and borrowing to one another
Inter-Dealer Broker	An offical broker in the government securities (gilts and treasury bills) market.
Interest	A payment made in return for the use of money.
Interest Only	A mortgage backed security where the holder receives only interest cash flows on the underlying mortgage pool.
Interest Rate Cap	??
Interest Rate Collar	A combination to an interest-rate cap and an interest rate floor
Interest Rate Derivative	A derivative whose payoffs are dependend on future interest rates.
Interest Rate Floor	An option that provides a payoff when an interest rate is below a certain level.
Interest Rate Option	An option where the payoff is dependent on the level of interest rates
Interest Rate Swap	An exchange of a fixed rate of interest on a certain notional principa for a floating rate of interest on the same notional principal.
Interest Yield	Flat Yield
International Monetary Fund	Supranatural organisation which plays an important role in troubled economies ??
Internationalisation	Globalisation
In-The-Money Option	Either - a call option where the asset price is greater than the strike price or - a put option where the asset price is less than the strike price.
Intrinsic Value	The amount by which a call option exercise price is below the market price (or a put option exercise price is above).
Inverted Market	A market where the futures price decreases with maturity.
Investment Asset	An asset held by at least some individuals for investment purposes.
Investment Grade	??
Investment Trust	A company whose whole business is running a wide portfolio of shares. A "closed-ended" fund.
Iron Butterfly	A short straddle combined with a long strangle on the same underlying and with the same time to expiry.
Irredeemable	Perpetual
ISDA	International Securities and Derivatives Association
Issue by Prospectus	Method of selling shares in a company.
Issuer	??
Issuer Warrant	??
Issuing	Offering a security in the market in the first instance, primary market
Joint Stock	Having shareholders
Kappa	see Vega
Ladder Option	Whenever the underlying hits a "rung" or threshold price level the strike is reset and gains to that point cannot be lost.
Lag	The time between making the actual trade and settling
Lamda	see Vega
LCE	London Commodity Exchange - cocoa, coffee, sugar, etc Merged with LIFFE in 1996
LDC	??
Lead Manager	Bank(s) taking a key role in a syndicated loan or issue of securities like eurobonds
LEAPS	Long-term Equity Anticipation Securities - These are relatively long-term options on individual stocks or stock indices.
Leasing	A kind of rental agreement whereby companies purchase land or equipment and pay for it by instalments.
Letter of Credit	A method of financing a trade
Leverage	American term for gearing or making a small amount of money go a long way
Liability	The side of the bank's balance sheet dealing with borrowings - that is deposits, formal loans to others. Also share capital.
LIBID	London Interbank Bid Rate
LIBOR	London Interbank Offered Rate � most common maturity is 3 months
LIBOR Curve	LIBOR zero-coupon interest rates as a function of maturity.
LIBOR-In-Arrears Swap	Swap where the LIBOR rate observed on a date is paid on that date rather than one accrual period later.
Life Assurance	A form of saving whereby individuals invest a small monthly premium in return for a much larger sum later on.
Life Insurance	A scheme whereby individuals pay a premium to a company which guarantees to pay their dependents a lump sum in the veent of death.
LIFFE	London International Financial Futures Exchange.
LIMEAN	Average of the LIBOR and LIBID rates
Limit Move	The maximum price move permitted by the exchange in a single trading session.
Limit Order	An order that can be executed only at a specified price or one more favourable to the investor.
Liquidity	This is how quickly would the lender get their money back. The longer the notice period the higher the interest rate
Liquidity Preference Theory	A theory leading to the conclusion that forward interest rates are above expected future spot interest rates.
Liquidity Premium	The amount that forward interest rates exceed expected future spot interest rate.
Liquidity Ratio	Usually a percentage relationship between a banks liquid assets and its eligible liabilities.
Liquidity Risk	The risk that trading in an asset dries up and prices cannot be found or are subject to sharp fluctuations.
Liquidity Theory	The principle that investors will demand a greater reward for investing their money for longer periods of time.
Lloyds of London	The insurance market
LME	London Metal Exchange
Local Currency	??
Local Market Products	??
Locals	Traders dealing for themselves as speculators
London Clearing House	The main operating company of ICCH
Long	To be long in shares, bonds or foreign exchange is it own more than you have sold
Long Bond	??
Long Hedge	A hedge involving a long futures position
Long Only Fund	relative to an underlying index - constrained by index weights
Long Position	The agreement to buy
Long Protection	??
Lookback Option	??
LORO	Alternative form of Vostro
LYON	Liquid Yield Option Note
Maintenance Margin	When the balance in a traders margin account falls below the maintenance margin level the trader receives a margin call requiring the account to be topped up to the intial margin level.
Making a Market	Buying or selling a financial instrument no matter what the market conditions are.
Managing Agent	Run and administer Lloyds syndicates on behalf of the names
Mandatory Liquid Asset	The charge for a sterling loan in the UK to cover non-interest bearing deposits at the Bank of England
Margin	The deposit required by clearing houses
Margin Call	A request for extra margin when the balance in the margin account falls below the maintenance margin level.
Mark to Market	The practice of revaluing an instrument to reflect the current values of the relevant market variables.
Market Maker	The dealers in stocks and shares as principals - that is taking the risk in their own name
Market Model	A model most commonly used by traders.
Market Neutral Portfolio	??
Market Segmentation Theory	A theory that short interest rates are determined independently of long interest rates by the market.
Matador Bond	Peseta bonds issued in Spain by non residents
Maturity	This is when the lender expects to be paid
Maturity Date	The end of the life of the contract.
Mean Reversion	The tendency of a market variable (such as an interest rate) to revert back to some long-run average level.
Medium-Term Notes	A flexible facility to issue notes of varying maturity, varying currency and either fixed or floating - all within one set of legal documentation
Merchant Banks	UK Term for an Investment Bank
Minimum Lending Rate	The rate at which the Bank of England will lend to discount houses. Only published as an "official" rate in emergencies, for example when the UK joined the ERM and September 1992 when there was an ERM crisis.
Modified Duration	A modification to the standard duration measure so that it more accurately describes the relationship between proportional changes in a bond price and absolute changes in its yield. The modification takes account for the compounding frequency with which the yield is quoted.
Money Broker	Intermediary putting borrowers in touch with lenders for a small commission
Money Market	The market for money instruments with a maturity of less than one year.
Money-at-Call	Money lent overnight It can be recalled in the morning.
Monte Carlo Simulation	??
Mortgage Backed Securities	Debt security backed by a pool of mortgages.
Multiple Option Facility	A revolving facility from a syndicate of banks permitting the raising of finance with various options - bank loan, bankers acceptance or commercial paper.
Municipal Bonds	Municipal bonds are issued by state, county, or city governments.
Mutual	A bank or insurance company not a public company but owned by its members
Mutual Funds	General name for pooled funds, such as investment trusts and unit trusts
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.
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 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 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	??

Abandon Option An option holder chooses not to exercise their option
Absolute Risk The volatility of total returns
Acceptance Short-term debt instruments, drawn on a bank for future payment
Acceptance House Guarantees payment of trade bills used to finance trade deals and goods in shipment
Accepting Signing a Bill of Exchange signifying an agreement to pay. Subsequent or alternative signature by a bank virtually guarantees payment.
Account ??
Accreted Value ??
Accreting Swap A swap in which the principal increases in each time period.
Accrual Swap An interest rate swap where interest on one side accrues only when a certain condition is met.
Accrued Interest Interest that has been earned but not yet paid
Actuary A statistician who calculates risk
Administrator An Administrator is responsible for ensuring the efficient day-to-day operation of a fund including the accounting.
Alpha A measure of performance on a risk adjusted basis.
Alternative Investment Market A market dedicated to smaller companies.
Alternative Minimum Tax ??
American Depository Receipt The form in which foreign shares can be traded in the US without a formal listing.
American Option An option that can be exercises at any time during its life.
Amortisation Repayment of the principal on a loan or bond installments over a period of time.
Amortising ??
Amortising Swap A swap where the notional principal decreases in a predetermined way as time passes.
Annual Percentage Rate Used to describe the true cost of the money borrowed on mortgages, loans and credit cards.
Annual Yield ??
Annuity Something that pays regular cash flows at fixed periods over a given period of time.
APACS Controlling cheque clearing, BACS and CHAPS in the UK
Arbitrage Taking advantage of an anomaly in prices or rates in different markets.
Arbitrageur A person who engages in arbitrage opportunities.
Article 65 Article for the Japanese Financial Code - prevents commercial banks from engaging in some investment banking
Asian Option An option with a payoff dependent on the average price of an underlying asset during a specified period.
Ask Price The price that a dealer is offering to sell a security.
Ask Rate Offer Rate
Asset Backed Securities ??
Asset Pricing ??
Asset-Or-Nothing Call Option An option that provides a payoff equal to the asset price if the asset price is above the strike price and zero otherwise.
Asset-Or-Nothing Put Option An option that provides a payoff equal to the asset price if the asset price is below the strike price and zero otherwise.
Assets The side of the balance sheet dealing with lending
Assurance The business of life insurance and pensions
As-You-Like-It Option Chooser Option
At-Best Order An order to a broker to buy and or sell a contract at the best price available.
At-The-Money Option An option in which the strike price equals the price of the underlying asset.
Auction Market Preferred Stock ??
Audit Inspection of a companys books by independent accountants
Automated Clearing House ??
Automated Pit Trading A computerised trading system used at the LIFFE in addition to open cry
Automatic Exercise When the clearing house automatically exercises in-the-money options at expiry.
Average-Price Call Option An option giving a payoff equal to the greater of zero and the amount by which the average price of the asset exceeds the strike price.
Average-Price Put Option An option giving a payoff equal to the greater of zero and the amount by which the strike price axceeds the average price of the asset.
Average-Strike Option An option that provides a payoff dependent on the difference between the final asset price and the average asset price.
Back Office Accounting and Settlements
Back-Testing Testing a value-at-risk or other model using historic data.
Backwardation When the spot or near term price of a commodity is higher than the forward rate.
Backwards Induction A procedure for working from the end of a tree to its neginning in order to value an option.
Bank Bill A Bill of Exchange accepted by a bank on the central bank's "eligible" list. The central bank itself would rediscount a bill of this type. Also called an Eligible Bill
Bankers Acceptance Bills of exchange acceppted by large banks
Bankers Automated Clearing Services ??
Barrier Option An option whose payoff depends on whether the path of the underlying asset has reached a barrier (i.e. a certain predetermined level).
Base Currency ??
Base Rate ??
Basis The difference between the spot price and the futures price of the commodity.
Basis Point One hundredth of a percent (0.01%)
Basis Risk When relationships between products used to hedge each other change or break down
Basis Swap Swap where cash flows determined by one floating reference rate are exchanged for cash flows determined by another floating reference rate.
Basket Option An option that provides a payoff dependent on the value of a portfolio of assets.
Bear A pessimist - selling securities in the belief of a falling stock and bond market, hence a "Bear" market
Bear Market A falling market
Bear Spread A short position in a put option with a strike price X1 combined with a long position in a put option with strike price X2 where X2 > X1. (A bear spread can also be created with call options).
Bearer Bond A bond payable to whoever is in possession - that is no central register
Bed and Breakfast Selling shares one day and buying them back the next - at the end of the tax year to maximise Capital Gains Tax allowance or claim losses against profits
Bermudan Option An option that can be exercides on specified dates during its life.
Beta A measure of systematic risk of an asset.
Bid Price The price that a dealer is prepared to pay for an asset.
Bid Rate Rate of interest offered for deposits in banking. Generally the dealer's buying price for equities, bonds, foreign exchange etc
Bid-Ask Spread The amount by which the ask price exceeds the bid.
Bid-Offer Spread same as Bid-Ask Spread
Big Bang Deregulation of the UK Stock Market 27 October 1986. New regulation and an automated price quotation system. The day when minimum commissions were abolished
Bill A short-term (3 months or so) instrument which pays interest to the holder and can be traded. Some bills do not pay interest but are issued at a discount to their face value.
Bill of Exchange A signed promise to pay by a receiver of goods or services and kept by the supplier.
Binary Option Option with discontinuous payoff; for example a cash-or-nothing option or an asset-or-nothing option.
Binomial Model A model where the price of an asset is monitored over successive short periods of time. In each short period of time it is assumed that only two price movements are possible.
Binomial Tree A tree that represents how an asset price can evolve under the binomial model.
Blacks Approximation An approximate procedure developed by Fischer Black for valuing a call option on a dividend paying stock.
Blacks Model An extension of the Black Scholes model for valuing European Options on futures contracts.
Black-Scholes Model The original European Stock Option pricing model written by Black and Schole in 1972
Blue Chip Large established companies. The most highly regarded shares.
Board Washing The individual who handles limit orders in some exchanges. The board broker makes information on outstanding limit orders available to other traders.
BOBL Short name for the short-term German government bond contract on the DTB
Bond An instrument that pays a fixed amount of interest to the holder.
Bond Factor ??
Bond Ladder ??
Bond Option An option where a bond is the underlying asset.
Bond Provisions ??
Bond Stripping ??
Bonos Spanish Government Bonds
Bonus Issue A free issue of shares to existing shareholders
Bonus Value ??
Book Entry ??
Book Value The value of an asset as entered in a company's balance sheet
Bootstrap Method A procedure for calculating the zero-coupon yield curver from market data.
Boston Option see Deferred payment option
Break Forward see Deferred payment option
Broker An individual (or firm) that acts as an intermediary putting buyers and sellers together for a brokerage fee.
Building Society Institutions whose primary function is to accept the savings of small investors and channel them to house buyers in return for the security of a mortgage on the property.
Bull An optimist, buying securities in the belief of a rising (stock and bond) market, hence a bull market
Bull Market A rising market
Bull Spread Buying a call option (a long position in a call) with a strike X1 combined with selling a call (short position in a call) with a strike price X2 where X2>X1 (a bull spread can also be created using put options).
Bullet Repayment The whole of a bond or bank loan is repaid at maturity (instead of staged payments in the last few years)
Bundesbank The German Central Bank
Cable Shorthand for dollar/sterling rate
Call Date ??
Call Money Money lent by banks to other banks or discount houses which can be recalled at noon each day
Call Protection ??
Call Risk ??
Call Schedule ??
Callable Credit Products ??
Cancelable Swap Swaps that can be cancelled by one side of prespecified dates.
Cap An agreement with a counterparty which sets an upper limit to interest rates for the cap buyer for a stated time period.
Cap Rate The rate determining payoffs in an interest rate cap
Capital Adequacy The need to maintain adequate capital to cover counterparty risk and position risk
Capital Asset Pricing Model A model relating the expected return on an asset to its beta.
Capital Gains Tax A tax on the profit when you sell (or 'dispose of') something (an 'asset') that's increased in value.
Capital Growth Bond Issue price at par (100%) with redemption at a multiple of that amount.
Capital Markets The market for medium and long term securities
Capital Ratio The ratio of a banks primary capital to a weighted value of assets
Capitalisation Market capitalisation of a company is the number of shares multiplied by the current price
Capitalisation Issue An issue where funds from a company's reserves are converted into shares and offered free of charge to shareholders.
Caplet One component on an interest rate cap
Cash Flow Mapping A procedure for representing an instrument as a portfolio of zero-coupon bonds for the purpose of calculating value at risk.
Cash Ratio The proportion of a bank's liabilities which it considers prudent to keep in the form of cash.
Cash Settlement Where the product is settled at expiry, based on the differential between the fixed/guaranteed price and the underlying instrument. Procedure for settling a futures contract in cash rather than by delivering the underlying asset.
Cash-Or-Nothing Call Option An option that provides a fixed predetermined payoff if the final asset price is above the strike price and zero otherwise.
Cash-Or-Nothing Put Option An option that provides a fixed predetermined payoff if the final asset price is below the strike price and zero otherwise.
CDO A security based on a mix of debt and credit risk. Different laters often referred to as tranches (or slices) each having different risk and maturities.
Central Counterparty Model Set up by the Stock Exchange to remove credit risk when buying and selling.
Certificate of Deposit A tradeable deposit issued by banks and building societies.
Certificates of Participation A type of municipal bond that are often used to finance capital improvement projects or equipment.
CHAPS Clearing House Automated Payments System - for electronic clearing of payments the same day (UK)
Cheapest-To-Deliver Bond The bond that is cheapest to deliver in the Chicago Board of Trade bond futures contract.
Chinese Wall A theoretical barrier between different sections of a firm to avoid fraud (i.e. conflicts of interest or insider dealing). One part of the firm may not pass sensitive information to another if it is against a client's interest.
CHIPS Clearing House Interbank Payments - electronic bank clearing in New York
Chooser Option An option where the holder has the right to choose whether it is call or a put at some point during its life.
CIRCUS Combined Interest Rate and Currency Swap
Clean Price Price of a bond not including the accrued interest element. This is the quoted price. The cash price paid for the bond (or dirty price) is calculated by adding the accrued interest to the clean price.
Clearing Bank Banks which are part of the clearing system which significantly reduces the number of interbank payments.
Clearing House A firm that guarantees the performance of the parties in an exchange-traded derivatives transaction. Central Body guaranteeing contracts in a traded options/futures market. Also known as clearing corporation.
Clearing Margin A margin posted by a member of a clearing house.
CLO Collateralized Loan Obligation - is a single security backed by a pool of debt.
Closing Out For futures market - taking the opposite contract for example having previously bought 100 tons of cocoa for June delivery, the buyer now sells 100 tons for the same delivery (or vice-versa)
CME Chicago Mercantile Exchange
CMO Collaterized Mortgage Obligation - A mortgage backed security where investors are divided into classes and there are rules for determining how principal repayments are channeled to the classes.
Collar see Interest Rate Collar
Collateral ??
Collaterised ??
Combination A position involving both calls and puts on the same underlying asset.
Commercial Banking The classic banking business of taking deposits and lending money, either retail or wholesale
Commerical Paper An unsecured IOU issued by large companies and banks.
Commission Brokers Individuals who execute trades for other people and charge a commission for doing so.
Commodity Swap A swap where cash flows depend on the price of a commodity.
Complex Power Duals ??
Compound Option An option on an option. The holder (buyer) has an option to purchase another option on a pre-set date at a pre-agreed premium.
Compounding Frequency This defines how an interest rate is measured.
Compounding Swap Swap where interest compounds instead of being paid.
Concert Party A group acting together (secretly) in a takeover situation for example three people each buy 2.9% of shares to avoid no longer being able to hide behind nominee status.
Confirmation Contract confirming verbal agreement between two parties to a trade in the over-the-counter market.
Consolidation Reorganising share holdings so that, for example 10 shares at 10p are replaced by a one £1 nominal
Constant Maturity Swap A swap where a swap rate is exchanged for eother a fixed rate or a floating rate on each payment date.
Constant Maturity Treasury Swap A swap where the yield on a Treasury Bond is exchanged for either fixed rate or floating rate on each payment date.
Consumption Asset An asset held for consumption rather than investment
Contango A situation where the futures price is above the expected future spot price.
Continuous Compounding A way of quoting interest rates. It is the limit as the assumed compounding interval is made smaller and smaller.
Contract for Difference A derivative product to trade the price differential over an indefinite time period.
Contract Size The unit of trading on a derivatives contract.
Control Variate Technique A technique that can sometimes be used for improving the accuracy of a numerical procedure.
Convenience Yield A measure of the benefits from ownership of an asset that are not obtained by the holder of a long futures contract on the asset.
Conversion Factor A factor used to determine the number of bonds that must be delivered in the bond futures market.
Convertible A convertible bond may be converted later into equity, some other bond or even a commodity
Convertible Rate FRN An issue which carries the option to convert either from an initial floating rate note into a fixed rate bond or from a fixed rate bond into a floating rate note.
Convexity A measure of the curvature in the relationship between bond prices and bond yields.
Convexity Adjustment An overworked term. It can refer to the adjustment necessary to convert a futures interest rate to a forward interest rate.
Corporate Bond ??
Corporate Finance The department of an investment bank dealing with takeovers, mergers and strategic advice to companies
Cost of Carry The storage costs plus the cost of financing as asset minus the income earned on the asset.
CounterParty The opposite side in a financial transaction.
Coupon Interest payment made on a bond.
Coupon Stripping Detaching the coupons from a bond and selling the coupons and the principal as individual zero coupon bonds
Cover An abbreviation of "short cover".
Covered Call A short position in a call option on an asset combined with a long position in the asset.
Covered Warrant A warrant issued by a party other than the originator or issuer of the underlying asset
Covered Writing Where an option is sold against an existing position.
Credit Derivative A derivative whose payoff depends on the creditworthiness of the one or more entities
Credit Enhancement ??
Credit Ratings A measure of the creditworthiness of a bond issue.
Credit Risk The risk that a loss will be experienced because of the default by the counterparty in a derivatives transaction.
Credit Spread The interest rate spread between 2 debt issues of similar duration, maturity etc.
Credit Spread Option Option whose payoff depends on the spread between the yields earned on two assets.
Credit Valuation Adjustment This is the market value of the counterparty credit-risk.
CREST The new UK Electronic settlement registering system introduced in July 1996.
CTD Cheapest To Deliver bond
Cum Dividend Means the buyer will get the recently announced dividend.
Cumulative Applied to a Preference Share - if dividend is missed it is still owed to the holder.
Currency Risk The risk of losses resulting from movements in currency exchange rates.
Currency Swap ??
Currency Warrants ??
Current Yield ??
CUSIP ??
Custodian ??
Cyclical Stock The share prices of these companies move dramatically (up and down) relative to the economy.
Cylinder Name used for a collar in currency markets.
Dated Date ??
DAX An index of 30 top German shares traded on the Frankfurt exchange.
Day Count A convention used for quoting interest rates.
Day Trade A position opened and closed on the same day.
Dealing Spread The difference between a trader's bid and offer price.
Debenture A long-term bond issues by a UK company and secured on fixed assets.
Deep Discount Bond This is a bond with issue price significanly below maturity price, due to lack of coupon or a coupon below the market rate.
Default ??
Defensive Stock The share prices of these companies does not move dramatically (up and down) relative to the economy.
Deferred Payment Option An option where the price paid is deferred until the end of the option's life.
Deferred Swap An agreement to enter into a swap at some time in the future.
Delivery ??
Delta Hedging A hedging scheme that is designed to make the price of a portfolio of derivatives insensitive to small changes in the price of the underlying asset.
Delta Neutral Portfolio A portfolio with a delta of zero so that there is no sensitivity to small changes in the price of the underlying asset.
Depository Receipt Certificates which represent ownership of a given number of company's shares which can be listed and traded separately from the underlying shares (eg ADRs and GDR)
Depreciation An accounting term which allows for the run-down in values of a company's assets.
Derivatives An instrument whose price depends on, or is derived from, the price of another asset.
Devaluation Term usually applies to currencies, which means simply a one-off loss in value (fall in price) of the currency concerbed.
Diagonal Spread A position in two calls where both the strike prices and times to maturity are different (this can also be created with put options).
Differential Swap A swap where a floating rate in one currency is exchanged for a floating rate in another currency and both rates are applied to the same principal.
Dilution The reduction in earnings per share caused by the creation of new shares.
Dirty Price Bond prices including the accrued interest element.
Discount The margin by which the purchase price is cheaper than the redemption price
Discount Bond see Zero-coupon bond
Discount Broker A broker who offers a no-frills, dealing-only service for a cheap price.
Discount House Takes the liquid money of the banking system and uses it to discount bills of exchange but Treasury Bills, etc.
Discount Instrument An instrument such as a Treasury Bill that provides no coupon.
Discount Margin ??
Discount Rate The annualised dollar return on a Treasury Bill or similar instrument expressed as percentage of the final face value.
Discounting Buying / Selling a security at less than face value.
Disintermediation Direct market borrowing or lending by companies without going through a bank.
Dividend A cash payment made to the owner of a stock (or equity)
Dividend Paying Stock ??
Dividend Yield The annual percentage return on a share price represented by the current dividend - usually gross.
Down-and-In Option An option that comes into existence when the price of the underlying asset falls to a certain level.
Down-and-Out Option An option that ceases to exist when the price of the underlying asset falls to a certain level.
Downside Risk The risk of making a loss on a position or an investment.
Duration A measure of the average life of a bond.
Duration Matching A procedure for matching the durations of assets and liabilitites in a finanical institution.
Dynamic Hedging A procedure for hedging an option position by periodically changing the position held in the underlying assets.
Early Exercise Exercising before the maturity date.
Earnings Yield Earnings per share (after tax) expressed as a percentage of share price
EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation
ECGD Export Credit Guarantee Department - government agency which provides trade insurance for exporters.
ECU European Currency Unit - a weighted basket of currencies to give an "average" value especially against the dollar.
EDR Euro Depositary Receipt
Efficient Market Theory Theory that asset prices reflect currently available information and fully discount expected future cash flows.
EFTPOS Electronic Funds Transfer at Point Of Sale - a scheme which allows customers to pay retailers with an electronic card. The funds are automatically debited from a client's account and credited to the retailer's.
Eligible Bill Bills of Exchange eligible for sale to a central bank when acting as "lender of last resort".
Embedded Option An option that is an inseparable part of another instrument
Empirical Research Research based on historical market data.
EMS European Monetary System - general agreement on monetary cooperation. Includes official use the Ecu.
EMU European Monetary Union
Endowment Mortgage Mortgage linked to a life-assurance scheme.
EPS Earnings Per Share
Equity General terms of shares.
Equity Collar ??
Equity Convertible Bond which can be converted into the shares of the issuing company.
Equity Swap A swap where the return on an equity portfolio is exchanged for either a fixed or a floating rate of interest.
ERM Exchange Rate Mechanism
ETF Exchange Traded Fund
Eurex The merged German-Swiss electronic derivatives exchange.
EURIBOR Rate at which banks in the eurozone borrow from one another.
Euro The European single currency
EuroClear Secondary market clearing and settlement system
EuroCurrencies Any currency held by banks, companies or individuals outside its country of origin.
EuroCurrency A currency that is outside the formal control of the issueing country's monetary authorities.
EuroDollar A dollar held in a bank outside the US.
EuroDollar Futures Contract A futures contract written on a Eurodollar receipt.
EuroDollar Interest Rate The interest rate on a eurodollar deposit
EuroMarket The offshore international financial market
EuroNext ??
EuroNote Short-term security denominated in a Eurocurrency.
European Option An option that can only be exercised at the end of its life.
EWMA Exponentially Weighted Moving Average
Exchange Option An option to exchange one asset for another
Exchange Rate The price at which one currency can be exchanged for another.
Exchange Traded A transaction where a specific instrument is bought or sold on a regulated exchange
Ex-Dividend see XD-Dividend
Ex-Dividend Date When a dividend is declared, an ex-dividend date is specified.
Executive Stock Option A stock option issued by a company on its own stock and given to its executives as part of their renumeration.
Exotics ??
Expectations Theory The theory that forward interest rates equal expected future spot interest rates.
Expected Value of a Variable The average value of the variable obtained by weighting the alternative values by their probabilities.
Expiry Date The end of the life of the contract.
Exponential Weightings A weightings scheme where the weight given to an observation depends on how recent it is.
Exponentially Weighted Moving Average Model A model where exponential weighting is used to provide forecasts for a variable from histrical data.
Extendable Swap A swap whose life can be extended at the option of one side to the contract.
Factoring Buying trade debts on a regular basis to assist cash flow - usually done by subsidiaries of banks.
FASB Financial Accounting Standards Board.
Federal Reserve The US monetary authority which plays a role similar to that of the Bank of England.
FedWire Electronic payments system between Federal Reserve banks in the US
Fill-or-Kill An order on an exchange which is either executed in its entirety at the stipulated price or cancelled.
Finance Houses Institutions which specialise in funding hire-purchase agreements
Financial Intermediary A bank or other financial institution that facilitates the flow of funds between different entities in the economy.
First Coupon Date ??
FIX Electronic Communication Protocol
Fixed Commissions ??
Fixed Exchange Rates Currencies with set values against each other which vary only in times of crisis when one or more currencies are revalued or devalued.
Flat Volatility The name given to a volatility used to price a cap when the same volatility is used for each caplet.
Flat Yield The annual percentage return on a bond taking into account the buying price, for example if £100 nominal worth of an 8% bond is bought for $50, the yield is 16%. Also called the running and interest yield (see redemption yield)
Flex Option An option traded on an exchange with terms that are different from the standard options traded by the exchange.
Flip Flop FRN A Floating Rate Note that has a very long final maturity or even a perpetual issue with an option to convert after a fixed period into a Short Dated FRN.
Floating Exchange Rates Currencies whose values against each other are set by market forces.
Floating Rate A loan with the interest rate varied at agreed intervals, linked to a base rate for example LIBOR
Floating Rate Note A medium to long term debt obligation with a variable interest rate which is adjusted periodically.
Floor An agreement with a counterparty which sets an upper limit to interest rates for the cap buyer for a stated time period.
Floor Rate The interest rate in an interest rate floor agreement.
Floor-Ceiling Agreement see Interest Rate Collar
Floored Floaters ??
Floorlet One component of a Floor
Foreign Currency Option An option on a foreign exchange rate.
Forfaiting Raising money by selling a company's invoices
Forward Contract A contract to buy or sell a commodity or security for future delivery at a price agreed today
Forward Exchange Rate The forward price of one unit of a foreign currency
Forward Market Market in which currencies are traded months or years ahead.
Forward Price The delivery price in a forward contract that causes the contract to be worth zero.
Forward Rate A rate agreed now for a future purchase or sale of a currency.
Forward Rate Agreement Agreement that a certain interest rate will apply to a certain principal amount for a certain time period in the future.
Forward Start Option An option designed so that it will be at the money at some point in the future.
Forward Swap see Deferred Swap
Forward-Forward Agreement Arrangement to lend or borrow a set sum at a date in the future for a set period at a set rate.
FOX London Futures and Options Exchange (commodities)
Fraud ??
Freddie Mac Federal National Mortgage Association (FNMA)
FSA Financial Services Authority
FTSE Index Financial Times ?? Index that tracks the share prices of 100 leading company.
Fungible Exchangeable - for example, a contract of one futures exchange and another will be identical. Can be opened in one and closed in the other exchange (or vice versa). Also used for further issues of bonds on exactly the same terms (and accrued interest) as those issued earlier.
Futures Instruments which give the buyer the right to purchase a commodity at a future date
Futures Contract Similar to forward but not expected to go to delivery as the position will be closed out with the opposite contract.
Futures Option An option on a futures contract.
Futures Price The delivery price currently applicable to a futures contract
Gamma The rate of change of delta with respect to the underlying
Gamma Neutral Portfolio A portfolio with a gamma of zero
Gearing Carrying out financial transactions on the basis of a deposit or borrowed money (US term is leverage).
Gearing Ratio Ratio of equity and long term debt.
Gilt Edged Security A bond issued by the UK government.
Gilt Warrants ??
Gilts Bonds issued by the UK government.
Global Bond International bond placed at the same time in the euro and one or more domestic markets ???
Global Depository Receipt A form in which foreign shares can be traded outside their domestic markets.
Globalisation The movement to integration of world markets regardless of national boundaries
GLOBEX ??
Golden Hello Payment made to an employee of a rival firm to entice him or her to transfer.
Goodwill An accounting term which describes the intangible assets of a company (e.g. brand names, skillful staff etc)
Greeks Hedge parameters such as delta, gamma, vega, theta and rho
Gross Redemption Yield The return which an investor will receive on a bond, allowing for both interest and capital growth as a percentage of the bonds price.
Hard Currencies ??
Harrison and Kreps ??
Hedge A trade designed to reduce risk
Hedge Fund A fund which takes both long and short positions
Hedge Ratio The ratio of the size of a position in a hedging instrument to the size of the position being hedged.
Hedger A person who enters into hedging trades.
Hedging A technique for limiting risk.
High Yield Bonds ??
Historic Volatility A volatility estimated from historical data
Historical Dividend The total dividend the company paid for its last financial year
Historical Simulation A simulation based on historical data
Holiday Calendar Calendar defining which days are holidays for the purpose of determing payment dates in a swap.
Hybrid Products ??
IDB see Inter-Dealer Broker
IMPA International Primary Markets Association (for Eurobond dealers)
Implied Distribution A distribution for a future asset price implied from option prices
Implied Volatility Volatility implied from an option price using the Black-Scholes or a similar model
Implied Volatility Trees ??
Index Amortizing Swap see Indexed Principal Swap
Index Arbitrage An arbitrage involving a position in the stocks comprising a stock index and a position in a futures contract on the stock index.
Index Futures A futures contract on a stock index or other index.
Index Option An option contract on a stock index or other index
Indexed Principal Swap A swap where the principal declines over time.
Indices like the S&P 500, CAC 40, FTSE 100 etc
Ineligible Bank Bills Bills of exchange accepted by a bank, but one not on the central bank's list
Inflation whether a given rate of interest represents good value or not will depend on the rate of inflation
Initial Margin Initial deposit required by a Clearing House (as opposed to variation margin)
Initial Public Offering American term for Offer for Sale
Insider Dealing The buying and selling of securities by someone with inside information.
Insolvent Unable to meet your financial obligations/debts.
Insurance If contrasted with assurance, this is the business other than life assurance
Insured Bonds ??
InterBank Market Bank lending and borrowing to one another
Inter-Dealer Broker An offical broker in the government securities (gilts and treasury bills) market.
Interest A payment made in return for the use of money.
Interest Only A mortgage backed security where the holder receives only interest cash flows on the underlying mortgage pool.
Interest Rate Cap ??
Interest Rate Collar A combination to an interest-rate cap and an interest rate floor
Interest Rate Derivative A derivative whose payoffs are dependend on future interest rates.
Interest Rate Floor An option that provides a payoff when an interest rate is below a certain level.
Interest Rate Option An option where the payoff is dependent on the level of interest rates
Interest Rate Swap An exchange of a fixed rate of interest on a certain notional principa for a floating rate of interest on the same notional principal.
Interest Yield Flat Yield
International Monetary Fund Supranatural organisation which plays an important role in troubled economies ??
Internationalisation Globalisation
In-The-Money Option Either - a call option where the asset price is greater than the strike price or - a put option where the asset price is less than the strike price.
Intrinsic Value The amount by which a call option exercise price is below the market price (or a put option exercise price is above).
Inverted Market A market where the futures price decreases with maturity.
Investment Asset An asset held by at least some individuals for investment purposes.
Investment Grade ??
Investment Trust A company whose whole business is running a wide portfolio of shares. A "closed-ended" fund.
Iron Butterfly A short straddle combined with a long strangle on the same underlying and with the same time to expiry.
Irredeemable Perpetual
ISDA International Securities and Derivatives Association
Issue by Prospectus Method of selling shares in a company.
Issuer ??
Issuer Warrant ??
Issuing Offering a security in the market in the first instance, primary market
Joint Stock Having shareholders
Kappa see Vega
Ladder Option Whenever the underlying hits a "rung" or threshold price level the strike is reset and gains to that point cannot be lost.
Lag The time between making the actual trade and settling
Lamda see Vega
LCE London Commodity Exchange - cocoa, coffee, sugar, etc Merged with LIFFE in 1996
LDC ??
Lead Manager Bank(s) taking a key role in a syndicated loan or issue of securities like eurobonds
LEAPS Long-term Equity Anticipation Securities - These are relatively long-term options on individual stocks or stock indices.
Leasing A kind of rental agreement whereby companies purchase land or equipment and pay for it by instalments.
Letter of Credit A method of financing a trade
Leverage American term for gearing or making a small amount of money go a long way
Liability The side of the bank's balance sheet dealing with borrowings - that is deposits, formal loans to others. Also share capital.
LIBID London Interbank Bid Rate
LIBOR London Interbank Offered Rate � most common maturity is 3 months
LIBOR Curve LIBOR zero-coupon interest rates as a function of maturity.
LIBOR-In-Arrears Swap Swap where the LIBOR rate observed on a date is paid on that date rather than one accrual period later.
Life Assurance A form of saving whereby individuals invest a small monthly premium in return for a much larger sum later on.
Life Insurance A scheme whereby individuals pay a premium to a company which guarantees to pay their dependents a lump sum in the veent of death.
LIFFE London International Financial Futures Exchange.
LIMEAN Average of the LIBOR and LIBID rates
Limit Move The maximum price move permitted by the exchange in a single trading session.
Limit Order An order that can be executed only at a specified price or one more favourable to the investor.
Liquidity This is how quickly would the lender get their money back. The longer the notice period the higher the interest rate
Liquidity Preference Theory A theory leading to the conclusion that forward interest rates are above expected future spot interest rates.
Liquidity Premium The amount that forward interest rates exceed expected future spot interest rate.
Liquidity Ratio Usually a percentage relationship between a banks liquid assets and its eligible liabilities.
Liquidity Risk The risk that trading in an asset dries up and prices cannot be found or are subject to sharp fluctuations.
Liquidity Theory The principle that investors will demand a greater reward for investing their money for longer periods of time.
Lloyds of London The insurance market
LME London Metal Exchange
Local Currency ??
Local Market Products ??
Locals Traders dealing for themselves as speculators
London Clearing House The main operating company of ICCH
Long To be long in shares, bonds or foreign exchange is it own more than you have sold
Long Bond ??
Long Hedge A hedge involving a long futures position
Long Only Fund relative to an underlying index - constrained by index weights
Long Position The agreement to buy
Long Protection ??
Lookback Option ??
LORO Alternative form of Vostro
LYON Liquid Yield Option Note
Maintenance Margin When the balance in a traders margin account falls below the maintenance margin level the trader receives a margin call requiring the account to be topped up to the intial margin level.
Making a Market Buying or selling a financial instrument no matter what the market conditions are.
Managing Agent Run and administer Lloyds syndicates on behalf of the names
Mandatory Liquid Asset The charge for a sterling loan in the UK to cover non-interest bearing deposits at the Bank of England
Margin The deposit required by clearing houses
Margin Call A request for extra margin when the balance in the margin account falls below the maintenance margin level.
Mark to Market The practice of revaluing an instrument to reflect the current values of the relevant market variables.
Market Maker The dealers in stocks and shares as principals - that is taking the risk in their own name
Market Model A model most commonly used by traders.
Market Neutral Portfolio ??
Market Segmentation Theory A theory that short interest rates are determined independently of long interest rates by the market.
Matador Bond Peseta bonds issued in Spain by non residents
Maturity This is when the lender expects to be paid
Maturity Date The end of the life of the contract.
Mean Reversion The tendency of a market variable (such as an interest rate) to revert back to some long-run average level.
Medium-Term Notes A flexible facility to issue notes of varying maturity, varying currency and either fixed or floating - all within one set of legal documentation
Merchant Banks UK Term for an Investment Bank
Minimum Lending Rate The rate at which the Bank of England will lend to discount houses. Only published as an "official" rate in emergencies, for example when the UK joined the ERM and September 1992 when there was an ERM crisis.
Modified Duration A modification to the standard duration measure so that it more accurately describes the relationship between proportional changes in a bond price and absolute changes in its yield. The modification takes account for the compounding frequency with which the yield is quoted.
Money Broker Intermediary putting borrowers in touch with lenders for a small commission
Money Market The market for money instruments with a maturity of less than one year.
Money-at-Call Money lent overnight It can be recalled in the morning.
Monte Carlo Simulation ??
Mortgage Backed Securities Debt security backed by a pool of mortgages.
Multiple Option Facility A revolving facility from a syndicate of banks permitting the raising of finance with various options - bank loan, bankers acceptance or commercial paper.
Municipal Bonds Municipal bonds are issued by state, county, or city governments.
Mutual A bank or insurance company not a public company but owned by its members
Mutual Funds General name for pooled funds, such as investment trusts and unit trusts
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.
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 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 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 ??