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Bond Option
In finance, a bond option is an option to buy or sell a bond at a certain price on or before the option expiry date. These instruments are typically traded OTC. *A European bond option is an option to buy or sell a bond at a certain date in future for a predetermined price. *An American bond option is an option to buy or sell a bond ''on or before'' a certain date in future for a predetermined price. Generally, one buys a call option on the bond if one believes that interest rates will fall, causing an increase in bond prices. Likewise, one buys the put option if one believes that interest rates will rise. One result of trading in a bond option, is that the price of the underlying bond is "locked in" for the term of the contract, thereby reducing the credit risk associated with fluctuations in the bond price. Valuation Bonds, the underlyers in this case, exhibit what is known as pull-to-par: as the bond reaches its maturity date, all of the prices involved with the bond b ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Finance
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of financial economics bridges the two). Finance activities take place in financial systems at various scopes, thus the field can be roughly divided into personal, corporate, and public finance. In a financial system, assets are bought, sold, or traded as financial instruments, such as currencies, loans, bonds, shares, stocks, options, futures, etc. Assets can also be banked, invested, and insured to maximize value and minimize loss. In practice, risks are always present in any financial action and entities. A broad range of subfields within finance exist due to its wide scope. Asset, money, risk and investment management aim to maximize value and minimize volatility. Financial analysis is viability, stability, and profitability asse ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Short-rate Model
A short-rate model, in the context of interest rate derivatives, is a mathematical model that describes the future evolution of interest rates by describing the future evolution of the short rate, usually written r_t \,. The short rate Under a short rate model, the stochastic state variable is taken to be the instantaneous spot rate. The short rate, r_t \,, then, is the ( continuously compounded, annualized) interest rate at which an entity can borrow money for an infinitesimally short period of time from time t. Specifying the current short rate does not specify the entire yield curve. However, no-arbitrage arguments show that, under some fairly relaxed technical conditions, if we model the evolution of r_t \, as a stochastic process under a risk-neutral measure Q, then the price at time t of a zero-coupon bond maturing at time T with a payoff of 1 is given by : P(t,T) = \operatorname^Q\left \mathcal_t \right where \mathcal is the natural filtration for the process. The inte ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Forward Measure
Forward is a relative direction, the opposite of backward. Forward may also refer to: People * Forward (surname) Sports * Forward (association football) * Forward (basketball), including: ** Point forward ** Power forward (basketball) ** Small forward * Forward (ice hockey) ** Power forward (ice hockey) * In rugby football: ** Forwards (rugby league), in rugby league football ** Forwards (rugby union), in rugby union football * Forward Sports, a Pakistan sportswear brand * BK Forward, a Swedish club for association football and bandy Politics * Avante (political party) (Portuguese for ''forward''), a political party in Brazil * Forward (Belgium), a political party in Belgium * Forward (Denmark), a political party in Denmark * Forward (Greenland), a political party in Greenland * Forward Party (United States), a centrist American political party * Kadima (Hebrew for ''forward''), a political party in Israel * La République En Marche! (sometimes translated as ''Forward!''), ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Yield To Maturity
The yield to maturity (YTM), book yield or redemption yield of a bond or other fixed-interest security, such as gilts, is an estimate of the total rate of return anticipated to be earned by an investor who buys a bond at a given market price, holds it to maturity, and receives all interest payments and the capital redemption on schedule. It is the (theoretical) internal rate of return (IRR, overall interest rate): the discount rate at which the present value of all future cash flows from the bond (coupons and principal) is equal to the current price of the bond. The YTM is often given in terms of Annual Percentage Rate (A.P.R.), but more often market convention is followed. In a number of major markets (such as gilts) the convention is to quote annualized yields with semi-annual compounding (see compound interest); thus, for example, an annual effective yield of 10.25% would be quoted as 10.00%, because 1.05 × 1.05 = 1.1025 and 2 × 5 = 10. Main assumptions The YTM calculat ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Yield Curve
In finance, the yield curve is a graph which depicts how the yields on debt instruments - such as bonds - vary as a function of their years remaining to maturity. Typically, the graph's horizontal or x-axis is a time line of months or years remaining to maturity, with the shortest maturity on the left and progressively longer time periods on the right. The vertical or y-axis depicts the annualized yield to maturity. Those who issue and trade in forms of debt, such as loans and bonds, use yield curves to determine their value. Shifts in the shape and slope of the yield curve are thought to be related to investor expectations for the economy and interest rates. Ronald Melicher and Merle Welshans have identified several characteristics of a properly constructed yield curve. It should be based on a set of securities which have differing lengths of time to maturity, and all yields should be calculated as of the same point in time. All securities measured in the yield curve ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Dirty Price
Dirt is an unclean matter, especially when in contact with a person's clothes, skin, or possessions. In such cases, they are said to become dirty. Common types of dirt include: * Debris: scattered pieces of waste or remains * Dust: a general powder of organic or mineral matter * Filth: foul matter such as excrement * Grime: a black, ingrained dust such as soot * Soil: the mix of clay, sand, and humus which lies on top of bedrock. The term 'soil' may be used to refer to unwanted substances or dirt that are deposited onto surfaces such as clothing. Exhibitions and studies A season of artworks and exhibits on the theme of dirt was sponsored by the Wellcome Trust in 2011. The centrepiece was an exhibition at the Wellcome Collection showing pictures and histories of notable dirt such as the great dust heaps at Euston and King's Cross in the 19th century and the Fresh Kills landfill which was once the world's largest landfill. Cleaning When things are dirty, they are usuall ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Forward Price
The forward price (or sometimes forward rate) is the agreed upon price of an asset in a forward contract. Using the rational pricing assumption, for a forward contract on an underlying asset that is tradeable, the forward price can be expressed in terms of the spot price and any dividends. For forwards on non-tradeables, pricing the forward may be a complex task. Forward price formula If the underlying asset is tradable and a dividend exists, the forward price is given by: : F = S_0 e^ - \sum_^N D_i e^ \, where :F is the forward price to be paid at time T :e^x is the exponential function (used for calculating continuous compounding interests) :r is the risk-free interest rate :q is the convenience yield :S_0 is the spot price of the asset (i.e. what it would sell for at time 0) :D_i is a dividend that is guaranteed to be paid at time t_i where 0< t_i < T. Proof of the forward price formula The two questions here are what price the short position (th ...[...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Spot Price
In finance, a spot contract, spot transaction, or simply spot, is a contract of buying or selling a commodity, security or currency for immediate settlement (payment and delivery) on the spot date, which is normally two business days after the trade date. The settlement price (or rate) is called spot price (or spot rate). A spot contract is in contrast with a forward contract or futures contract where contract terms are agreed now but delivery and payment will occur at a future date. Spot prices and future price expectations Depending on the item being traded, spot prices can indicate market expectations of future price movements in different ways. For a security or non-perishable commodity (e.g. silver), the spot price reflects market expectations of future price movements. In theory, the difference in spot and forward prices should be equal to the finance charges, plus any earnings due to the holder of the security, according to the cost of carry model. For example, on a s ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bermudan Option
In finance, the style or family of an option is the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) options. These options—as well as others where the payoff is calculated similarly—are referred to as "vanilla options". Options where the payoff is calculated differently are categorized as "exotic options". Exotic options can pose challenging problems in valuation and hedging. American and European options The key difference between American and European options relates to when the options can be exercised: * A European option may be exercised only at the expiration date of the option, i.e. at a single pre-defined point in time. * An American option on the other hand may be exercised at any time before the expiration date. For both, the payoff—when it occurs—is given by * \max\, for a call option * \max\, for a put option where K is the strike ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
American Option
In finance, the style or family of an option is the class into which the option falls, usually defined by the dates on which the option may be exercised. The vast majority of options are either European or American (style) options. These options—as well as others where the payoff is calculated similarly—are referred to as "vanilla options". Options where the payoff is calculated differently are categorized as "exotic options". Exotic options can pose challenging problems in valuation and hedging. American and European options The key difference between American and European options relates to when the options can be exercised: * A European option may be exercised only at the expiration date of the option, i.e. at a single pre-defined point in time. * An American option on the other hand may be exercised at any time before the expiration date. For both, the payoff—when it occurs—is given by * \max\, for a call option * \max\, for a put option where K is the strike pr ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
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