Bond convexityIn finance, bond convexity is a measure of the non-linear relationship of bond prices to changes in interest rates, and is defined as the second derivative of the price of the bond with respect to interest rates (duration is the first derivative). In general, the higher the duration, the more sensitive the bond price is to the change in interest rates. Bond convexity is one of the most basic and widely used forms of convexity in finance. Convexity was based on the work of Hon-Fei Lai and popularized by Stanley Diller.
Corporate bondA corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of at least one year. Corporate debt instruments with maturity shorter than one year are referred to as commercial paper. The term "corporate bond" is not strictly defined. Sometimes, the term is used to include all bonds except those issued by governments in their own currencies.
Forward contractIn finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivative instrument. The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. The price agreed upon is called the delivery price, which is equal to the forward price at the time the contract is entered into.
Heston modelIn finance, the Heston model, named after Steven L. Heston, is a mathematical model that describes the evolution of the volatility of an underlying asset. It is a stochastic volatility model: such a model assumes that the volatility of the asset is not constant, nor even deterministic, but follows a random process. The basic Heston model assumes that St, the price of the asset, is determined by a stochastic process, where , the instantaneous variance, is given by a Feller square-root or CIR process, and are Wiener processes (i.
Derivative (finance)In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the underlying. Derivatives can be used for a number of purposes, including insuring against price movements (hedging), increasing exposure to price movements for speculation, or getting access to otherwise hard-to-trade assets or markets.
Risk-neutral measureIn mathematical finance, a risk-neutral measure (also called an equilibrium measure, or equivalent martingale measure) is a probability measure such that each share price is exactly equal to the discounted expectation of the share price under this measure. This is heavily used in the pricing of financial derivatives due to the fundamental theorem of asset pricing, which implies that in a complete market, a derivative's price is the discounted expected value of the future payoff under the unique risk-neutral measure.
Bond durationIn finance, the duration of a financial asset that consists of fixed cash flows, such as a bond, is the weighted average of the times until those fixed cash flows are received. When the price of an asset is considered as a function of yield, duration also measures the price sensitivity to yield, the rate of change of price with respect to yield, or the percentage change in price for a parallel shift in yields. The dual use of the word "duration", as both the weighted average time until repayment and as the percentage change in price, often causes confusion.
Volatility arbitrageIn finance, volatility arbitrage (or vol arb) is a term for financial arbitrage techniques directly dependent and based on volatility. A common type of vol arb is type of statistical arbitrage that is implemented by trading a delta neutral portfolio of an option and its underlying. The objective is to take advantage of differences between the implied volatility of the option, and a forecast of future realized volatility of the option's underlying. In volatility arbitrage, volatility rather than price is used as the unit of relative measure, i.
Convertible bondIn finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value. It is a hybrid security with debt- and equity-like features. It originated in the mid-19th century, and was used by early speculators such as Jacob Little and Daniel Drew to counter market cornering.
Model aircraftA model aircraft is a small unmanned aircraft. Many are replicas of real aircraft. Model aircraft are divided into two basic groups: flying and non-flying. Non-flying models are also termed static, display, or shelf models. Aircraft manufacturers and researchers make wind tunnel models for testing aerodynamic properties, for basic research, or for the development of new designs. Sometimes only part of the aircraft is modelled.
