Serving Intelligent Investors
Kappa
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.
Macaulay Duration 1. A measure of the sensitivity of a financial instrument’s value to a change in its yield. Macaulay Duration is an overestimate, and Modified Duration (q.v.) is a more precise measure. 2. The […]
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 […]
An option strategy that achieves its maximum potential if the underlying security rises far enough, and has its maximum risk if the security falls far enough. An option with a lower striking price is bought […]
