|
Foreign Exchange Option
In finance, a foreign exchange option (commonly shortened to just FX option or currency option) is a derivative financial instrument that gives the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. See Foreign exchange derivative. The foreign exchange options market is the deepest, largest and most liquid market for options of any kind. Most trading is over the counter (OTC) and is lightly regulated, but a fraction is traded on exchanges like the International Securities Exchange, Philadelphia Stock Exchange, or the Chicago Mercantile Exchange for options on futures contracts. The global market for exchange-traded currency options was notionally valued by the Bank for International Settlements at $158.3 trillion in 2005. Example For example, a GBPUSD contract could give the owner the right to sell £1,000,000 and buy $2,000,000 on December 31. In this case the pre-agreed exchange ra ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Derivative (finance)
In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be used for a number of purposes, including insuring against price movements ( hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets. Some of the more common derivatives include forwards, futures, options, swaps, and variations of these such as synthetic collateralized debt obligations and credit default swaps. Most derivatives are traded over-the-counter (off-exchange) or on an exchange such as the Chicago Mercantile Exchange, while most insurance contracts have developed into a separate industry. In the United States, after the financial crisis of 2007–2009, there has been increased pressure to move derivatives to trade on exchanges. Derivatives are one of the ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Strike Price
In finance, the strike price (or exercise price) of an option is a fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity. The strike price may be set by reference to the spot price, which is the market price of the underlying security or commodity on the day an option is taken out. Alternatively, the strike price may be fixed at a discount or premium. The strike price is a key variable in a derivatives contract between two parties. Where the contract requires delivery of the underlying instrument, the trade will be at the strike price, regardless of the market price of the underlying instrument at that time. Moneyness Moneyness is the value of a financial contract if the contract settlement is financial. More specifically, it is the difference between the strike price of the option and the current trading price of its underlying security. In options trading, terms such as ''in-the-mone ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Black–Scholes Model
The Black–Scholes or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing derivative investment instruments. From the parabolic partial differential equation in the model, known as the Black–Scholes equation, one can deduce the Black–Scholes formula, which gives a theoretical estimate of the price of European-style options and shows that the option has a ''unique'' price given the risk of the security and its expected return (instead replacing the security's expected return with the risk-neutral rate). The equation and model are named after economists Fischer Black and Myron Scholes; Robert C. Merton, who first wrote an academic paper on the subject, is sometimes also credited. The main principle behind the model is to hedge the option by buying and selling the underlying asset in a specific way to eliminate risk. This type of hedging is called "continuously revised delta hedging" and is the basis of more complicated ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Forward Rate
The forward rate is the future yield on a bond. It is calculated using the yield curve. For example, the yield on a three-month Treasury bill six months from now is a ''forward rate''.. Forward rate calculation To extract the forward rate, we need the zero-coupon yield curve. We are trying to find the future interest rate r_ for time period (t_1, t_2), t_1 and t_2 expressed in years, given the rate r_1 for time period (0, t_1) and rate r_2 for time period (0, t_2). To do this, we use the property that the proceeds from investing at rate r_1 for time period (0, t_1) and then reinvesting those proceeds at rate r_ for time period (t_1, t_2) is equal to the proceeds from investing at rate r_2 for time period (0, t_2). r_ depends on the rate calculation mode (simple, yearly compounded or continuously compounded), which yields three different results. Mathematically it reads as follows: Simple rate : (1+r_1t_1)(1+ r_(t_2-t_1)) = 1+r_2t_2 Solving for r_ yields: Thus r_ = \ ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Forward Contract
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivative instrument.John C Hull'', Options, Futures and Other Derivatives (6th edition)'', Prentice Hall: New Jersey, USA, 2006, 3 The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. The price agreed upon is called the ''delivery price'', which is equal to the forward price at the time the contract is entered into. The price of the underlying instrument, in whatever form, is paid before control of the instrument changes. This is one of the many forms of buy/sell orders where the time and date of trade is not the same as the value date where the securities themselves are exchanged. Forwards, like other derivative securities, can b ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and Northern Ireland. The United Kingdom includes the island of Great Britain, the north-eastern part of the island of Ireland, and many smaller islands within the British Isles. Northern Ireland shares a land border with the Republic of Ireland; otherwise, the United Kingdom is surrounded by the Atlantic Ocean, the North Sea, the English Channel, the Celtic Sea and the Irish Sea. The total area of the United Kingdom is , with an estimated 2020 population of more than 67 million people. The United Kingdom has evolved from a series of annexations, unions and separations of constituent countries over several hundred years. The Treaty of Union between the Kingdom of England (which included Wales, annexed in 1542) and the Kingdom of Scotland in 170 ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Hedge (finance)
A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, many types of over-the-counter and derivative products, and futures contracts. Public futures markets were established in the 19th century to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations. Etymology Hedging is the practice of taking a position in one market to offset and balance against the risk adopted by assuming a position in a contrary or opposing market or investment. The word hedge is from Old English ''hecg'', originally any fence, living or artificial. The first known use of the word ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Residual Risk
The residual risk is the amount of risk or danger associated with an action or event remaining after natural or inherent risks have been reduced by risk controls. The general formula to calculate residual risk is : \text = (\text) - (\text) where the general concept of risk is ( threats × vulnerability Vulnerability refers to "the quality or state of being exposed to the possibility of being attacked or harmed, either physically or emotionally." A window of vulnerability (WOV) is a time frame within which defensive measures are diminished, com ...) or, alternatively, (severity × probability). An example of residual risk is given by the use of automotive seat-belts. Installation and use of seat-belts reduces the overall severity and probability of injury in an automotive accident; however, probability of injury remains when in use, ''that is'', a remainder of residual risk. In the economic context, residual means “the quantity left over at the end of a process; a remai ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Implied Volatility
In financial mathematics, the implied volatility (IV) of an option contract is that value of the volatility of the underlying instrument which, when input in an option pricing model (such as Black–Scholes), will return a theoretical value equal to the current market price of said option. A non-option financial instrument that has embedded optionality, such as an interest rate cap, can also have an implied volatility. Implied volatility, a forward-looking and subjective measure, differs from historical volatility because the latter is calculated from known past returns of a security. To understand where implied volatility stands in terms of the underlying, implied volatility rank is used to understand its implied volatility from a one-year high and low IV. Motivation An option pricing model, such as Black–Scholes, uses a variety of inputs to derive a theoretical value for an option. Inputs to pricing models vary depending on the type of option being priced and the pricing m ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Change Of Numéraire
Change or Changing may refer to: Alteration * Impermanence, a difference in a state of affairs at different points in time * Menopause, also referred to as "the change", the permanent cessation of the menstrual period * Metamorphosis, or change, a biological process by which an animal physically develops after birth or hatching * Personal development, or personal change, activities that improve awareness and identity * Social change, an alteration in the social order of a society * Technological change, invention, innovation, and diffusion of technology Organizations and politics * Change 2011, a Finnish political party * Change We Need, a slogan for Barack Obama's 2008 presidential campaign * Change.gov, the transition website for the incoming Obama administration in 2008–2009 * Change.org, a petition website operated by Change.org, Inc. * Communities Helping All Neighbors Gain Empowerment (CHANGE), a civic organization based in Winston-Salem, North Carolina * Movement for ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Numéraire
The numéraire (or numeraire) is a basic standard by which value is computed. In mathematical economics it is a tradable economic entity in terms of whose price the relative prices of all other tradables are expressed. In a monetary economy, acting as the numéraire is one of the functions of money, to serve as a unit of account: to provide a common benchmark relative to which the worths of various goods and services are measured. This concept was confused between the properties of ‘money’ and ‘units of account’ until 1874-7, Leon Walras clarified it. He showed that the price can be expressed without introducing "money." Price can be translated in term of another. Using a numeraire, whether monetary or some consumable good, facilitates value comparisons when only the relative prices are relevant, as in general equilibrium theory. When economic analysis refers to a particular good as the numéraire, one says that all other prices are normalized by the price of that good. For ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Numéraire
The numéraire (or numeraire) is a basic standard by which value is computed. In mathematical economics it is a tradable economic entity in terms of whose price the relative prices of all other tradables are expressed. In a monetary economy, acting as the numéraire is one of the functions of money, to serve as a unit of account: to provide a common benchmark relative to which the worths of various goods and services are measured. This concept was confused between the properties of ‘money’ and ‘units of account’ until 1874-7, Leon Walras clarified it. He showed that the price can be expressed without introducing "money." Price can be translated in term of another. Using a numeraire, whether monetary or some consumable good, facilitates value comparisons when only the relative prices are relevant, as in general equilibrium theory. When economic analysis refers to a particular good as the numéraire, one says that all other prices are normalized by the price of that good. For ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
.svg "Click for more on -> United Kingdom")
