Financial Derivative Terms - D

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Dated Date: The date from which accrued interest is calculated on debt instruments (bonds) when the purchase date is between interest payment (coupon) dates.
Day Count Convention: Used for the calculation of an accrual factor, this is the number of days that a financial instrument accrues interest for a partial time period based on the defined interest accruing days that make up a full period. Also known as accrual method.
Debenture: Unsecured debt usually offered by governments or corporations in order to raise capital. The investor expects to be repaid based on the reputation of the issuer as to the unlikely chance of default.
Debt Instrument: A written promise to repay a debt.
Default: Failure to make agreed upon payments on the principal and/or interest.
Default Correlations: Measures the possibility of one company to default on its obligations and its affect on another company to default on its obligations as well. This is positive default correlation. It is also possible that the opposite (negative) can occur.
Default Probabilities: Measures the likelihood of a counterparty to fail in its obligation over the life of or for a period of time in the agreement.
Deferred Swap: A swap in which the payments are deferred for a specified period. Unlike a forward swap, where the entire swap is delayed, in a deferred swap only the payments are deferred. For example, a company wanting to enter a swap, but not wanting cash flows until a future period, may want to defer payment.
Delivery Adjusted Fair Quoted Futures Price: The fair quoted bond futures price divided by the conversion factor for the deliverable bond. The bond with the lowest delivery adjusted fair quoted futures price is also the cheapest to deliver bond.
Delivery Date: The date that a seller must fulfill the obligations (delivery of a good or transfer of a financial instrument) of a forward or futures contract for settlement.
Delta: The rate of change in the fair value of the option per 100% change in the current value of the underlying asset.
Delta Hedging: Rebalancing a portfolio dynamically by taking a short or long position on delta units of the underlying per one unit of the option in which one is long or short, respectively.
Delta of Correlation: The rate of change in the fair value of the option per 1% change in the instant correlation between two assets. This is the derivative of the option price with respect to the correlation value, divided by 100
Derivatives: A contract between two or more parties where the price of the contract is dependent upon or â€œderived" from the price(s) of one or more underlying assets, rates or relationships. Its value is determined by price fluctuations in the underlying asset. The most common types of derivatives are options, futures, forwards and swaps.
Differential Swap: A swap in which a counterparty swaps floating payments referenced to an interest rate of one currency into floating payments referenced to an interest rate of another currency. The principal for both payments, however, is in one currency. The differential swap is therefore a strip of forward rate agreements and the pricing characteristics are similar to a fixed-fixed cross-currency swap, and a premium will be payable either up front or as a spread on the floating rate. Also known as cross index basis swap.
Digital Swap: A swap structure where the swap can be extended or canceled after a given number of years. Equivalent to a swap plus a European swaption expiring at the date when the extension choice is made.
Dirty Price: The value of a transaction at any given date including accrued interest.
Discount Factor: The percentage rate that calculates the present value of one dollar to be received from a security at a specified future date. The discount factor is equal to 1/(1 + i)t where i is the interest rate and t is the number of time units from the date of purchase until the specified future date.
Discounting Curve: A graphical representation of interest rates used for calculating the present value of a transactionâ€™s cash flows.
Discount Rate: Used to determine the cash discount amount for securities quoted on a discount rate basis. These are non-interest bearing instruments issued at a discount, redeemed at maturity for full face value and are priced at face value less the discount amount. An example of a discount security is a US Treasury bill.
Discount Rate Basis: The discount rate is used to determine the discount amount for a security when quoted on a discount rate basis. The fair price is calculated by subtracting the discount amount from the face value of the security.
Discount Swap: An off-market swap in which the fixed payments are below the market rate. At the end of the swap the shortfall is made up by one large payment. Companies may use this type of structure to reduce interest rate payments during completion of a project. The more these payments are discounted, the more credit risk is taken by the counterparty. At the extreme, fixed payments can be set to zero resulting in a larger balloon payment on the maturity date. This is known as a zero coupon swap.
Dollar Delta: It is the Delta multiplied by the notional principal.
Dollar Discount: This is the dollar amount deducted from the face value of a security quoted on a discount rate basis in order to obtain the instruments price. The dollar discount is calculated by multiplying the face value x discount rate x accrual factor.
Dollar Duration: The change in the value of a bond given a change in yield. This is also sometimes described as basis point value multiplied by 100.
Dollar Vega: It is the Vega multiplied by the notional principal.
Double Average Options: Options that combine the features of an average strike option and an average price option. Used predominately in the currency markets by multinationals, these options are designed to match currency risks more closely as the option creates an average strike and average price based on pre-defined sampling periods.
Double Average Rate Option (Daro): A double average option where the strike price is not set at inception; it becomes the average price of the predefined sampling points. Combine this with an average rate feature, the value of a Daro can be described as the difference between the expected average strike price and the expected average rate.
Double Barrier Binary Option: A type of Double Barrier Option whereby in the knock-out case, if during the life of the option neither barrier is touched, the payout at expiry is as for a binary option. For the knock-in option, on the other hand, the payout at expiry is as for a binary option only if one of the barriers has been breached.
Double Barrier Call or Put Option: A type of Double Barrier Option whereby in the knock-out case, if during the life of the option neither barrier is touched, the payout at the expiry is as for a call or put option. For the knock-in option, on the other hand, the payout at expiry is as for a call or put option only if one of the barriers has been breached.
Double Barrier Option: Options that depend not only on the final asset value but also on whether either one of two barrier levels, a lower barrier which is below the value of the underlying, and a upper barrier which is above the value of the underlying, were touched at some time during the life of the option (making the payoff path dependent). There are two types of double barrier options, a knock in or a knock out.
Down-and-in Barrier Option: A type of single barrier option that when the option is set, the underlying asset is above the barrier level. If the barrier is touched, the holder now owns a standard option. If over the life of the option the barrier is never touched, the option dies worthless though the holder may be entitled to a rebate.
Down-and-out Barrier Option: A type of single barrier option that when the option is set, the underlying asset is above the barrier level. As long as the barrier is never touched, the holder owns a standard option. If the barrier is ever touched, the option dies worthless though the holder may be entitled to a rebate.
Dual Currency Bond: A bond where the coupons are paid in one currency but the principal is paid in another.
Dual Currency Swap: A swap used to hedge dual currency bonds in which the issuer has the option to repay principal and coupon in either the base currency or an alternative currency, at a preset exchange rate. Dual currency swaps are currency swaps that incorporate the foreign exchange options necessary to hedge the interest payments back into the principal currency.
Dual Strike Option: A dual strike option is a European style option whose payoff involves receiving the best payoff of two standard European style call or put options. These options involve two underlying assets and two strike prices.
Duration: Duration is a weighted average of the maturity of all the income streams generated by a financial asset. The weights are the proportion of the assetâ€™s total present value of the cash flows until the remaining payments are made. For all bonds, duration is shorter than maturity except zero coupon bonds, whose duration is equal to maturity.
DVOX: Credit spread sensitivity. The change in fair value per X basis points up shift in the par CDS spread curve of each entity in the reference pool or in the case of a single entity, only the default curve of the specified reference entity is shifted X basis points.

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