SHOP

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.

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

Non-cyclical stocks having low betas in industries such as food retailers and public utilities.

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.

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…

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…

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

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.

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.

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

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 markets,…

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.