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| R2012a Documentation → Financial Derivatives Toolbox | |
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An option that can be exercised any time until its expiration date. Contrast with European option.
A set of generic cash flow amounts for which a price needs to be established.
An option whose payoff depends upon the average price of the underlying asset over a certain period of time.
A digital option that pays the value of the underlying security if the option expires in the money.
An option that is activated or deactivated only if the price of the underlying asset crosses a barrier. See also knock-in and knock-out . If the option fails to execute, the seller may pay to the purchaser a predetermined rebate.
An option that is activated or deactivated only if the price of the underlying asset crosses a barrier. See also knock-in and knock-out . If the option fails to execute, the seller may pay to the purchaser a predetermined rebate.
An option that provides a payoff dependent on the value of a portfolio of assets.
The price volatility of a financial instrument relative to the price volatility of a market or index as a whole. Beta is most commonly used with respect to equities. A high-beta instrument is riskier than a low-beta instrument.
A method in which the probability over time of each possible price or rate follows a binomial distribution. The basic assumption is that prices or rates can move to only two values (one higher and one lower) over any short time period. See also trinomial model.
A model for pricing interest rate derivatives where all security prices and rates depend upon the short rate (annualized one-period interest rate).
A long-term debt security with fixed interest payments and fixed maturity date.
The right to sell a bond back to the issuer (put) or to redeem a bond from its current owner (call) at a specific price and on a specific date.
A tree of prices or interest rates in which the number of branches increases exponentially relative to observation times; branches never recombine. Opposite of a recombining tree .
1. An option to buy a certain quantity of a stock or commodity for a specified price within a specified time. See also put .
2. A demand to submit bonds to the issuer for redemption before the maturity date.
Allows the option buyer to enter into an interest rate swap in which the buyer of the option pays the fixed rate and receives the floating rate.
A bond that allows the issuer to buy back the bond at a predetermined price at specified future dates. The bond contains an embedded call option; that is, the holder has sold a call option to the issuer. See also puttable bond.
Interest-rate option that guarantees that the rate on a floating-rate loan will not exceed a certain level.
An interim cap component in a multiperiod interest-rate cap agreement.
A digital option that pays some fixed amount of cash if the option expires in the money.
An option on an option, such as a call on a call, a put on a put, a call on a put, or a put on a call.
The rate of change of the price of a derivative security relative to the price of the underlying asset; that is, the first derivative of the curve that relates the price of the derivative to the price of the underlying security.
A financial instrument that is based on some underlying asset. For example, an option is a derivative instrument based on the right to buy or sell an underlying instrument.
An interest rate model in which the values of the rates in the next time step are determined solely by the values of the rates in the current time step.
An option whose payout is fixed after the underlying stock exceeds the predetermined threshold or strike price.
Coefficient used to compute the present value of future cash flows.
Sensitivity reported as a dollar price change instead of a percentage price change.
A type of barrier option that becomes active if the barrier is reached from above. See also knock-in.
A type of barrier option that becomes deactivated if the barrier is reached from above. See also knock-out .
An option that can be exercised only on its expiration date. Contrast with American option.
Date when a declared dividend belongs to the seller rather than the buyer.
The price set for buying an asset (call) or selling an asset (put). The strike price.
Any nonstandard option. Opposite of vanilla option.
Strike price is fixed at purchase. The underlying is priced at its highest or lowest level, depending whether it is a call or put, during the life of the option rather than expiring at market.
A long-term debt security with preset interest rate and maturity, by which the interest must be paid. The principal may or may not be paid at maturity.
Strike price is fixed at maturity. For a call, the price is fixed at the lowest price during the life of the option; for a put it is fixed at the highest price.
A security similar to a bond, but in which the note's interest rate is reset periodically, relative to a reference index rate, to reflect fluctuations in market interest rates.
Interest-rate option that guarantees that the rate on a floating-rate loan will not fall below a certain level.
One of the interim period floors in a multiple period floor agreement.
The curve of forward interest rates vs. maturity dates for bonds.
The future interest rate of a bond inferred from the term structure, especially from the yield curve of zero-coupon bonds, calculated from the growth factor of an investment in a zero held until maturity.
The rate of change of delta for a derivative security relative to the price of the underlying asset; that is, the second derivative of the option price relative to the security price.
A digital option in which one strike decides if the option is in or out of money and another strike decides the size the size of the payoff.
A model of the interest rate term structure that works with a type of interest rate tree called a bushy tree .
A securities transaction that reduces or offsets the risk on an existing investment position.
A collection of financial assets. A portfolio.
A factor by which the present value of an asset is multiplied to find its future value. The reciprocal of the discount factor.
A bond interest payment for more or less than six-months' interest. The first coupon on many bonds is irregular because payment is other than six months from the dated date.
A barrier option that is activated when the price of the underlying asset achieves a designated target. There are two types: up-and-in and down-and-in.
A barrier option that is deactivated when the price of the underlying asset achieves a designated target. There are two types: up-and-out and down-and-out.
The percentage change in an option price divided by the percentage change in an underlying price.
A mathematical method of determining the best fit of a curve to a series of observations by choosing the curve that minimizes the sum of the squares of all deviations from the curve.
The yield on a zero-coupon Treasury bond.
An option that reduces uncertainties associated with the timing of market entry. Lookback options can be either fixed lookback option and floating lookback option.
The tendency of a variable to return to its mean value after reaching a point of excessive positive or negative valuation relative to the mean.
A right to buy or sell specific securities or commodities at a stated price (exercise or strike price) within a specified time. An option is a type of derivative.
The dollar sensitivity divided by the corresponding instrument price.
A collection of financial assets. Also called an instrument set.
A MATLAB structure that holds all pricing information.
A vector of instrument prices.
A MATLAB structure that defines how the price tree is used to find the price of instruments in the portfolio, and how much additional information is displayed in the command window when the pricing function is called.
An option to sell a stipulated amount of stock or securities within a specified time and at a fixed exercise price. See also call .
Allows the option buyer to enter into an interest rate swap in which the buyer of the option receives the fixed rate and pays the floating rate.
A bond that allows the holder to redeem the bond at a predetermined price at specified future dates. The bond contains an embedded put option; that is, the holder has bought a put option. See also callable bond .
A single option linked to two or more underlying assets. In order for the option to pay off, all the underlying assets must move in the intended direction.
A MATLAB structure that holds all information needed to identify completely the evolution of interest rates.
A predetermined amount of money paid to the purchaser of a barrier option if the option fails to execute.
A tree of prices or interest rates whose branches recombine over time. Opposite of a bushy tree .
A trading strategy whereby the value of a portfolio after rebalancing is equal to its value at any previous time.
The "what if" relationship between variables; the degree to which changes in one variable cause changes in another variable. A specific synonym is volatility. See also dollar sensitivity.
The annualized one-period interest rate.
A sinking fund bond is a coupon bond with a sinking fund provision. This provision obligates the issuer to amortize portions of the principal prior to maturity, affecting bond prices since the time of the principal repayment changes.
The current interest rate appropriate for discounting a cash flow of some given maturity.
For options, a combination of call or put options on the same stock with differing exercise prices or maturity dates.
A step-up and step-down bond is a debt security with a predetermined coupon structure over time.
Involving or containing a random variable or variables; involving chance or probability.
Exercise a put or call option.
See exercise price .
A digital option that pays out a proportion of the assets underlying a portfolio if the asset lies between a lower and an upper bound at the expiry of the option.
A contract between two parties to exchange cash flows in the future according to some formula.
An option on an interest rate swap. It grants the option buyer the right to enter into an interest rate swap at a future date.
A MATLAB structure that represents the mapping between times and dates for interest rate quoting.
A method in which the basic assumption is that prices or rates can move to one of three possible values over any short time period. At any time step the price or rate direction can be upward, neutral, or downward. See also binomial model .
A set of simultaneous equations in which the number of independent variables exceeds the number of equations in the set, leading to an infinite number of solutions.
A type of barrier option that becomes active if the barrier is reached from below. See also knock-in.
A type of barrier option that becomes deactivated if the barrier is reached from below. See also knock-out .
A common option, such as a put or call. Opposite of exotic option.
A swap agreement to exchange a fixed rate for a floating rate.
The rate of change in the price of a derivative security relative to the volatility of the underlying security. When vega is large, the security is sensitive to small changes in volatility.
A MATLAB structure that specifies the forward rate volatility process.
The zero coupon rate.
The zero curve.
The zero coupon volatilities.
A yield curve for zero-coupon bonds; zero rates versus maturity dates. Since the maturity and duration (Macaulay duration) are identical for zeros, the zero curve is a pure depiction of supply/demand conditions for loanable funds across a continuum of durations and maturities. Also known as spot curve or spot yield curve.
A bond that, instead of carrying a coupon, is sold at a discount from its face value, pays no interest during its life, and pays the principal only at maturity.
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