SHOP

The name given to the price paid for an option or an option-like feature. The premium is determined by two types of value called intrinsic value and time value.

A contract giving the owner the right, but not the obligation to purchase or sell the underlying asset. A call option gives the owner the right to buy the underlying asset at the strike price and a put option gives the owner the right to sell the underlying asset at…

Refers to the spread over Treasuries after an adjustment is made for the value of the embedded call option. OAS present values the future cash flows by using some constant spread over the Treasury spot curve such that it takes into account any potential exercise of embedded options. Also known…

A portfolio of risky assets that maximizes the Sharpe ratio or the Treynor ratio.

The buying and selling of securities in the “open market” by central banks. Purchasing securities by central banks adds money to the banking system and selling securities by central banks drains money from the banking system.

Those U.S. Treasury securities that are the most recent issues for their respective maturities.

Whenever a swap or other instrument must be priced with a coupon or floating rate that deviates from currently prevailing market conditions.

Those U.S. Treasury securities that are not the most recent issues for their respective maturities.

A position with potential financial consequence that does not appear on either the asset side or the liabilities side of a balance sheet. The advent of recent accounting changes such as FAS 133 and IAS 39 require these instruments to be accounted/recognized on the balance sheet. However, the term OBS…

1) The outcomes expected of a particular strategy or course of action within a given time frame. 2) Investment objectives refer to the investor’s goals expressed in terms of risk and return profiles, acceptable asset classes, and acceptable trading strategies and are included in the policy investment statement.

The amount of principal on which the interest is calculated on a swap or related instrument including FRAs and interest rate options. In the case of interest rate swaps, FRAs, and interest-rate options, the principal is purely “notional” in that no exchange of principal ever takes place.

A shift in the yield curve where the short end of the curve doesn’t move by the same number of basis points as the long end of the curve. Can result in a widening, flattening and inversion of the yield curve.