The strike price of a put or call option multiplied by its contract size. Aggregate exercise prices are used to determine the dollar amount required should the option be exercised. For example, if options on ABC co. have a contract size of 100 shares and a strike price of $10, then the aggregate exercise price will be $1000 ($10 * 100 shares). In the case of a bond option, the exercise price is multiplied by the face value of the underlying bond. Aggregate Exercise Price The strike price of a put or call option multiplied by its contract size. Aggregate exercise prices are used to determine the dollar amount required should the option be exercised. For example, if options on ABC co. have a contract size of 100 shares and a strike price of $10, then the aggregate exercise price will be $1000 ($10 * 100 shares). In the case of a bond option, the exercise price is multiplied by the face value of the underlying bond.
1. An option's strike price after adjustments have been made for stock splits to its underlying security. 2. A term used to describe the strike prices for options written on Ginnie Mae pass through certificates. 1. Anytime changes occur on securities in which options are written, the strike price and delivery quantity must be adjusted in order to ensure that neither the long or short holder of the options are affected. For example, if an option for stock ABC had an exercise price of $50, and the underlying stock split 2 for 1, then the option would have an adjusted exercise price of $25 for 200 shares. 2. The interest rates assigned to GNMA pass through certificates differ from that of their benchmark rate. As such, these rates must be adjusted so that the investor will receive the same yield. Adjusted Exercise Price 1. An option's strike price after adjustments have been made for stock splits to its underlying security. 2. A term used to describe the strike prices for options written on Ginnie Mae pass through certificates. 1. Anytime changes occur on securities in which options are written, the strike price and delivery quantity must be adjusted in order to ensure that neither the long or short holder of the options are affected. For example, if an option for stock ABC had an exercise price of $50, and the underlying stock split 2 for 1, then the option would have an adjusted exercise price of $25 for 200 shares. 2. The interest rates assigned to GNMA pass through certificates differ from that of their benchmark rate. As such, these rates must be adjusted so that the investor will receive the same yield.
The calculation of an insurance premium based on crucial factors such as the applicant's age, gender, health, family history and the type of insurance coverage applied for. This allows insurers to treat applicants fairly according to their estimated risk levels. In automobile insurance, insurers use age as a rating factor in determining individual premiums. Thus, because young people tend to have less favorable driving records as a group, these individuals are required to pay out more in premiums, which normally include the expected value of losses. Actuarial Equity The calculation of an insurance premium based on crucial factors such as the applicant's age, gender, health, family history and the type of insurance coverage applied for. This allows insurers to treat applicants fairly according to their estimated risk levels. In automobile insurance, insurers use age as a rating factor in determining individual premiums. Thus, because young people tend to have less favorable driving records as a group, these individuals are required to pay out more in premiums, which normally include the expected value of losses.
A form of vesting that takes place at a faster rate than the initial vesting schedule in a company's stock option plan. This allows the option holder to receive the monetary benefit from the option much sooner. If a company decides to undertake accelerated vesting, then it may expense the costs associated with the stock options sooner. Prior to the adoption of FAS-123(R), U.S. companies were not required to account for stock option compensation paid to employees and executives. As a result of FAS-123(R), companies were required to account for stock option expenses, which amounted to a large expense for many companies. By adopting an accelerated vesting program, companies can expense their vesting costs over a longer period of time, which makes their future incomes higher than they would be if the options were vested on schedule. Accelerated Vesting A form of vesting that takes place at a faster rate than the initial vesting schedule in a company's stock option plan. This allows the option holder to receive the monetary benefit from the option much sooner. If a company decides to undertake accelerated vesting, then it may expense the costs associated with the stock options sooner. Prior to the adoption of FAS-123(R), U.S. companies were not required to account for stock option compensation paid to employees and executives. As a result of FAS-123(R), companies were required to account for stock option expenses, which amounted to a large expense for many companies. By adopting an accelerated vesting program, companies can expense their vesting costs over a longer period of time, which makes their future incomes higher than they would be if the options were vested on schedule.
An option feature whereby a reference price is activated at the end of an option should the underlying fall below a specified average before option expiry. This method of averaging the level of the underlying protects the investor from sudden and adverse price movements. Asian Tail An option feature whereby a reference price is activated at the end of an option should the underlying fall below a specified average before option expiry. This method of averaging the level of the underlying protects the investor from sudden and adverse price movements.
An option whose payoff depends on the average price of the underlying asset over a certain period of time as opposed to at maturity. Also known as an average option. This type of option contract is attractive because it tends to cost less than regular American options. An Asian option can protect an investor from the volatility risk that comes with the market. Asian Option An option whose payoff depends on the average price of the underlying asset over a certain period of time as opposed to at maturity. Also known as an average option. This type of option contract is attractive because it tends to cost less than regular American options. An Asian option can protect an investor from the volatility risk that comes with the market.
A hedge position taken in anticipation of a future buy or sell transaction. An anticipatory hedge is used when an investor intends on entering the market and wants to reduce his or her risk by taking a long or short position in the target security. This type of hedge typically involves taking a long position, but can also involve short positions. Anticipatory hedges are not only used by investors. They are also a tool that can be used by businesses, such as farmers. For example, a farmer exports wheat from the United States to England. He will be paid in dollars once the goods reach the final destination, but the shipping time may take several weeks. The farmer is worried that the dollar will lose value over that time period when compared to the pound, so he takes a short position on the dollar so that he can hedge the anticipated decline. This is an anticipatory hedge because the farmer is taking a hedging strategy on a good, in this case the dollar, that he does not have yet. Anticipatory Hedge A hedge position taken in anticipation of a future buy or sell transaction. An anticipatory hedge is used when an investor intends on entering the market and wants to reduce his or her risk by taking a long or short position in the target security. This type of hedge typically involves taking a long position, but can also involve short positions. Anticipatory hedges are not only used by investors. They are also a tool that can be used by businesses, such as farmers. For example, a farmer exports wheat from the United States to England. He will be paid in dollars once the goods reach the final destination, but the shipping time may take several weeks. The farmer is worried that the dollar will lose value over that time period when compared to the pound, so he takes a short position on the dollar so that he can hedge the anticipated decline. This is an anticipatory hedge because the farmer is taking a hedging strategy on a good, in this case the dollar, that he does not have yet.
The most common of three official methods established by the International Swaps and Derivatives Association for calculating termination payments on a prematurely ended swap. The agreement value method is based on the terms available for a replacement swap because the counterparty that did not cause the early termination may need to enter into a replacement swap. Replacement swaps are used to calculate termination payments because changes in market conditions since the initial (now-terminated) swap were entered will mean that the terms of that swap are no longer available. The replacement swap will likely have different terms and different interest rates. The indemnification method and the formula method are alternatives to the agreement value method, but these are not used extensively. A termination event such as an illegality, tax event, tax event upon merger or credit event will cause a swap agreement to be terminated early, as will an event of default such as bankruptcy or failure to pay. If a swap is terminated early, both parties will cease to make the agreed-upon payments, and the counterparty who caused the early termination may be required to pay damages to the other counterparty. Agreement Value Method The most common of three official methods established by the International Swaps and Derivatives Association for calculating termination payments on a prematurely ended swap. The agreement value method is based on the terms available for a replacement swap because the counterparty that did not cause the early termination may need to enter into a replacement swap. Replacement swaps are used to calculate termination payments because changes in market conditions since the initial (now-terminated) swap were entered will mean that the terms of that swap are no longer available. The replacement swap will likely have different terms and different interest rates. The indemnification method and the formula method are alternatives to the agreement value method, but these are not used extensively. A termination event such as an illegality, tax event, tax event upon merger or credit event will cause a swap agreement to be terminated early, as will an event of default such as bankruptcy or failure to pay. If a swap is terminated early, both parties will cease to make the agreed-upon payments, and the counterparty who caused the early termination may be required to pay damages to the other counterparty.
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