A legal description of the predetermined settlement price for a contract or negotiable instrument. This term refers to the stated final payment to be made at the end of a contract. A digital option is an example of a financial product with a sum-certain payment. After a set price is met, the payout is fixed instead of depending on or relating to the underlying security and strike price.
An options strategy created by being long in one put and two call options, all with the exact same strike price, maturity and underlying asset. Also referred to as a "triple option". A strap option is used when a trader believes that the future price movement of the underlying security will be large and more likely up than down. By adding two call options the trader has a large gain if he or she is right about the large upward movement. But if the forecast is wrong and the price has a large reversal, the trader is protected by the put option.
A type of convertible debenture, part of which will be redeemed by the issuing company after a specified period of time and part of which is convertible into equity or preference shares at the end of the specified period. The ratio of conversion for the partially convertible debenture is decided by the issuer when the debenture is issued. |||Any partial conversion will be optional at the hands of the debenture holder. Partially convertible debentures differ from fully convertible debentures, in which all of the instrument must be converted into equity.
An option pricing model incorporating three possible values that an underlying asset can have in one time period. The three possible values the underlying asset can have in a time period may be greater than, the same as, or less than the current value. The trinomial option pricing model differs from the binomial option pricing model in one key aspect, which is incorporating another possible value in one periods time. Under the binomial option pricing model, it is assumed that the value of the underlying asset will either be greater than or less than, its current value. The trinomial model, on the other hand, incorporates a third possible value, which incorporates a zero change in value over a time period.This assumption makes the trinomial model more relevant to real life situations, as it is possible that the value of an underlying asset may not change over a time period, such as a month or a year.
An investment-transaction classification that refers to the withdrawal of a portion of a security's value by the owner. Rather than withdrawing the entire amount of his or her security's value from the account, an investor may prefer to keep a portion of the value invested in the asset while still obtaining some cash. |||For example, a partial redemption occurs if an investor orders the withdrawal of a portion of Treasury notes held in an account. The account owner would specify the proportion of the asset he or she would like to withdraw; the amount withdrawn includes a portion of the asset's principal and interest earned.
An option exchange rule that prevents the occurrence of a trade through. If a better bid is posted on another exchange for an option and a market maker is unwilling or unable to match it for a client order, the market maker may offer to trade with the other market maker. The market maker offering the better price must accept the offer and trade at the price offered or adjust the bid.
The portion of the option premium that is attributable to the amount of time remaining until the expiration of the option contract. Basically, time value is the value the option has in addition to its intrinsic value.
A graph of the yields on hypothetical Treasury securities with prices at par. On the par yield curve, the coupon rate will equal the yield-to-maturity of the security, which is why the Treasury bond will trade at par. |||Deriving a par yield curve is a step toward creating a theoretical spot rate yield curve, which is then used to more accurately price a coupon-paying bond. A method know as bootstrapping is used to derive the arbitrage-free forward interest rates.
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