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The ratio of the dollar price change in the price of an option to a 1% change in the expected price volatility.
Knockin Option
An option that “comes to life” when a trigger event occurs. Typically when a price crosses a particular barrier it pulls the trigger.
Knockout Option
An option that “dies” when a trigger event occurs. Typically when a price crosses a particular barrier it pulls the trigger.
Idiosyncratic Risk Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words, the risk that is firm specific and can be diversified through holding a portfolio of stocks. Immediate settlement […]
Factor sensitivity The impact on a portfolio of assets of movements in the underlying risk parameter of an individual asset. Factor portfolio A well-diversified portfolio constructed to have a beta of 1.0 on one factor […]
Xerxes The sensitivity of Convexity to a change in yield. The “Convexity” of Modified Duration The third derivative of a financial instrument’s value with respect to its yield. Hedging so that Xerxes equals zero is […]
