Financial Derivative Terms - T

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

Tax Exempt (Municipal) Swaptions: Options on municipal swaps, such as BMA fixed/floating swaps, in which the floating leg payments are based upon the US Bond Market Association Municipal Swap Index (the "BMA Index"). The BMA index is usually 65%-70% of its taxable equivalent, 1-month LIBOR. Payment is based upon an average of the weekly BMA index resets. The rates are weighted by the number of days of overlap between the 7-day rate period and the payment calculation period (i.e., 7 if the week falls entirely within the payment period, or less if there is only partial overlap).
Term: The period of time between a security's issue date and its maturity date or date of removal from holdings and is the lifespan of the security. The life of the investment fall into one of two categories: short term (less than 1 year) or long term (from 1 to many years). For bonds, it is the time for all payments to be made to and received by the lender. For equities, it is the time period that the equity is acquired and then sold.
Term Structure Model: A set of assumptions referring to the relationship between bonds of different maturities and their yields.
Term to Maturity: The amount of time between the present time and a bond's maturity date.
Terminal Value: The value of an investment at the end of a holding period including accrued interest.
Termination Date: The date that a transaction ends and interest payments cease to accrue.
Theta: The rate of change in the fair value of the option per one day decrease of the option time.
Tick: The smallest possible upward or downward movement in the price of a security.
Time Value: The difference between option value and intrinsic value (see Intrinsic Value), i.e.: Time Value = Option Value - (price of underlying - strike price of option), or: Time Value = Option Value - Intrinsic Value.

The time value of an option is meant to describe the possibility that the option will increase in value relatively to the volatility of the underlying asset. Time value is always positive and declines exponentially over time until the expiration date when time value reaches zero.
Total Return Equity Swap: Similar to a total return swap on a bond, it is a 2-sided financial contract in that one counterparty pays out the total return of the equity, including its dividends and capital appreciation or depreciation, and in return, receives a regular fixed or floating cash flow. For convenience the asset's total return is called a TR-leg and the fixed or floating cash flow a non-TR leg. A total return swap can be settled at the terminating date only or periodically, e.g., quarterly. The equity used in a total return swap contract can be a single publicly traded stock or a private stock, a portfolio of stocks, a stock index, or even any market index. The buyer of a total return equity swap can gain the economic exposure to certain equity or index market without physically owning such assets while the seller of a total return equity swap can reduce or eliminate the market risk of his/her stock portfolio without selling the assets and gain stable returns.
Total Return Swap (TRS): A credit derivative in which one party pays the total positive return on a bond or other financial obligation, while the other party pays a fixed or variable rate payment plus any negative total returns on the reference asset. Both parties' payments are based upon the same notional amount. The reference asset can be almost any asset, index or basket of assets. Learn more about Total Return Swap Pricing
Trade Date: The date that a transaction is agreed upon.
Tranche: The risk range of two adjacent risk levels or classes in a CDO. The lower bound of the risk level of a tranche is often referred to as an attachment point and the upper bound a detachment point. Tranche is derived from the French word for "slice". Each tranche is a separate security with its own interest rate, maturity date and cash flows.
Tranche Correlation: In a CDO tranche, a correlation that gives the tranche a par spread equal to the given spread. In general, the tranche correlation is only available for the equity tranche.
Treasury Bill: Short-term debt obligation issued by the government of the country of the currency concerned, normally with an original maturity of less than one year from the date of the issue. T-bills are issued via competitive bidding process at a discount so do not pay interest payments rather the return made is the appreciation at maturity.
Treasury Bond: A marketable, fixed-interest security issued by the government of the country of the currency concerned, normally with an initial maturity of at least 10 years from the date of the original issue.
Treasury Note: A marketable, fixed-interest (coupon bearing) debt security issued by the government of the country of the currency concerned normally with an initial maturity from one to 10 years.
Trinomial Tree: Three scenarios: increase, decrease, and stay the same for each valuation date.
True Yield: True yield is based on the assumption that the time in years to a coupon payment is the exact number of days from settlement to that coupon date divided by 365. This convention is mainly used in the United Kingdom.

Disclaimer

With respect to this document, FinancialCAD ®Corporation ("FINCAD") makes no warranty either express or implied, including, but not limited to, any implied warranty of merchantability or fitness for a particular purpose. In no event shall FINCAD be liable to anyone for special, collateral, incidental, or consequential damages in connection with or arising out of the use of this document or the information contained in it. This document should not be relied on as a substitute for your own independent research or the advice of your professional financial, accounting or other advisors.

This information is subject to change without notice. FINCAD assumes no responsibility for any errors in this document or their consequences and reserves the right to make changes to this document without notice.