Financial Derivative Terms - V
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
- Valuation
- The calculations involved to determine the worth of an asset for a specific point in time.
- Valuation Date
- The point in time for which the fair value (the price for payment and delivery on the market) of a derivative is calculated.
- Value at Risk (VaR)
- A statistical estimate of the market risk of a portfolio. VaR attempts to answer the following question. Given a certain confidence level and a specified time horizon, what is the maximum potential loss of the portfolio?
- Vanilla Derivative
- A derivative that has no special or outstanding features and are usually fairly common.
- Variable Income Security
- An investment where payments fluctuate based on some underlying measure such as short-term interest rates.
- Variable Interest Rate
- Interest rates which move up and down due to the fluctuations of a specified interest rate benchmark such as LIBOR.
- Variable Rate Bond
- A debt instrument whose interest rate floats in conjunction with a specific interest rate curve
- Variance
- A statistic that measures the dispersion of data points such as rates or prices around their mean value which is the squared value of the standard deviation.
- Variance Swap
- A forward contract on future realized price variance, where variance is the square of volatility.
- Vega
- The rate of change in the fair value of the option per 1% change in the volatility of the asset.
- Vega of Swaptions
- The rate of change in the fair value of the option per 1% change in the volatility.
- Vega Surface Interpolation
- The mathematical process used to obtain an unknown number from a three-dimensional graph representing changes in vega both by strike price and expiry dates of an option.
- Volatility
- A measurement of how much the price of a stock various over time or is expected to move in the near future and to what degree are these variances; however, the measurement does not take into account price direction only the quantity of the change. This number is important for analyzing many different types of instruments to determine the probability of a pre-determined price being reached on a certain date in the future.
- Volatility Bootstrapping
- A bootstrapping method used to value caps and floors by bootstrapping out the spot volatility for each caplet or floorlet. The volatility used in valuing each caplet using the Black model is called the “spot volatility", and is the volatility of the forward rate. See also Bootstrap.
- Volatility Skew
- A volatility smile (implied volatilities varying by strike price) when it is not symmetrical.
- Volatility Smile
- A symmetrical curve which graphically shows implied volatilities varying by strike prices on the same underlying asset with the same expiration date.
- Volatility Surface
- A three dimensional graph which shows volatilities varying both by strike price and expiry dates (shows the volatility smile and term structure at the same time).
- Volatility Swap
- A forward contract on future realized price volatility.
- Volatility Term Structure
- A graph that shows implied volatility by varying expiration dates for a specific strike price.
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