Debenture

An unsecured debt obligation.

Dedicated Cash Flow Matching

One of the methods of constructing a dedicated portfolio. It involves developing a portfolio of bonds that will provide an income stream by way of coupon payments, and principal payments at maturity, which will exactly offset a specific set of liabilities over a given time period.

Dedication

A bond portfolio management strategy in which cash flows from specific assets are earmarked to retire a specified set of liabilities over a period of time. Dedicated portfolios are normally immunized against interest rate risk. Dedication can either be “Cash Flow Matched” or with “Reinvestment”.

Default risk

(1) The risk that a party to a contract will fail to make a payment when required to do so.  Usually associated with an inability to make the payment due to insolvency or bankruptcy.  When used in this way, the term is synonymous with credit risk.  (2) In swap banking, the term is used more broadly to describe the risk of an "event of default."  (3) In swap banking the term is sometimes used to describe a swap bank's exposure from the combination of credit risk and market risk.

Defaulting party

Counterparty to a derivative transaction that has committed an event of default.

Deferred delivery

 A contract delivery schedule that involves a period of time longer than that customary for cash transactions, implying immediate delivery. Both futures and forward contracts involve deferred delivery.

Delayed rate setting swap

Also called a deferred rate-setting swap.  A fixed-for-floating interest rate swap in which the swap commences immediately but the swap coupon is not set until later.

Deliverable obligation (DO)

Obligation/security that will be delivered if a credit event is triggered.

Delivery risk

Also called settlement risk.  The risk that differences between market settlement hours may result in exchanges of interest and/or principals at different times or even on different days.  The first paying party is exposed to the risk that the later paying party will default after the first paying party has made its required payment but before the later paying party has made its payment.

Delta

Delta shows the relationship between the price of an option and the asset underlying the option. It is the ratio of the change in the price of an option to the change in the price of the underlying asset. It shows the amount by which an option's price will change for every one-unit change in price of the underlying asset.

Delta neutral

The buying or selling of the underlying instrument in order to eliminate the exposure of the underlying price movement found in the price of an option 

Derivative instruments

An instrument that is defined on, and whose value is a function of, some other instrument or asset.  Examples include futures, options, and swaps.

Digital FX linked note

A plain vanilla FX linked note combined with a digital option.  Coupon payment is determined by the strike rate (pre-determined exchange rate) of the embedded option.

Digital option

See binary option

Discount

When the price of a security falls below its face value, the difference between the current price of the security and its face value can be called the discount. When bonds or stocks are trading below their face value they are said to be trading at a discount and when they are trading above their face value they are said to be trading at a premium.

Dollar Duration

The product of the modified duration and the market value of the bond. Dollar duration expresses the price volatility of an asset or portfolio of assets in absolute dollar amounts as opposed to modified duration which shows the price volatility in terms of percentage changes in price.

Dollar value of a basis point (DVBP, DV01)

The dollar value change that would result from a 1 basis point change in an instrument's yield.  In order to make the definition usable, the DVBP must be stated per some amount of face value.

Dual Currency Notes

A dual currency note (DC) pays coupons in the investors' domestic currency with the notional in the issuers’ domestic currency.

Duration

A measure developed by Frederick Macaulay that allows for accurate measurement of a debt instrument's price sensitivity to yield changes.  Duration is the instrument's weighted average time to maturity.