Financial Derivative Terms - W

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

Warrants: Options issued by a company on its own stock. The fundamental difference between a standard option and a warrant is what happens at exercise. In the case of a standard call option, upon exercise, existing stock is delivered to the option holder. In the case of a warrant, upon exercise, the company issues new stock that is then delivered to the warrant holder. This new stock issue leads to a dilution of the existing equity and lowers the value of each individual stock.
Waterfall: Payment allocation of principal and interest cash flows to debt holders in order of priority in a multi-tranche security such as a CDO.
Weather Derivative: A derivative where the underlying is weather related(rain, snow, temperature) and the payoff is dependent on the weather. These instruments are used by companies to reduce risk associated with adverse (not disastrous) weather conditions resulting in losses.
Weighted Average Coupon(WAC): The average of the gross interest rates charged to the borrowers of the underlying mortgages in the pool as of the pool issue date using the balance of each mortgage (size of each loan) as the weighting factor.
Weighted Average Life (WAL): The average number of years that the unpaid principal amount due on a mortgage remains to be paid calculated as the average time to the receipt of all future principal cash flows.
Weighted Average Maturity (WAM): The average of the time, expressed in number of months, to a maturity date for the loans in an MBS pool weighted by the value of each loan. To calculate the WAM, first calculate each of the weightings by adding the value of the mortgages together, and determining what percentage each mortgage has to the total. Then multiply each weighting by their respective time to maturities and total these numbers.

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