410 Midterm 1 Flashcards
(36 cards)
American option
An options that can be exercise at any time during it’s life.
arbitrage
a trading strategy that takes advantage of two or more securities being mis-priced relative to each other
asian option
an option with a payoff dependent on the average price of the underlying asset during a specified period.
asset-backed security
security created from a portfolio of loans, bonds, credit card receivables, or other assets.
asset swap
exchange the coupon on a bond for LIBOR plus a spread
bermudan option
an option that can be exercised on specified dates during it’s life
call option
an option to buy an asset at a certain price by a certain date.
cash settlement
procedure for setting a futures contract in cash rather than by delivering the underlying asset.
CDD
cooling degree days
coupon
interest payment made on a bond
credit default swap
an instrument that gives the holder the right to sell a bond for its face value in the event of a default by the issuer.
credit risk
the risk that a loss will be experienced because of a default by counter party in a derivatives transaction.
currency swap
a swap where interest and principal in one currency are exchanged for interest and principal in another currency.
european option
an option that can be exercised only at the end of its life.
exercise price
the price at which the underlying asset may be bought or sold in an option contract (also called the strike price).
forward contract
a contract that obligates the holder to buy or sell and asset for a predetermined delivery price at a predetermined future time.
forward interest rate
the interest rate for a future period of time implied by the rates prevailing in the market today.
future contract
a contract that obligate the holder to buy or sell an asset at a predetermined delivery price during a specified future time period. the contract is settled daily.
haircut
discount applied to the value of an asset for collateral purpose.
HDD
heating degree days.
hedge fund
decrease risk and decrease volatility. 1. funds that are subject to less regulation and fewer restrictions than mutual funds. 2. they can take short position and use derivatives. 3. but they cannot publicly offer their securities.
interest rate swap
an exchange of a fixed rate of interest on a certain notional principal for a floating rate of interest on the same notional principal.
LIBOR
LODON INTERBANK OFFERED RATE
Liquidity risk
- risk that it will not be possible to sell a holding of a particular instrument at it;s theoretical price. 2. the risk that a company will not be able to borrow money to fund its assets.
