Bond valuation - Relative price approach. Here the bond will be priced relative to a benchmark, usually a government security. The discount rate used to value the bond is determined based on the bond's rating relative to a government security with similar maturity. The better the quality of the bond, the smaller the spread between its required return and the YTM of the benchmark. This required return is then used to discount the bond cash flows as above. Bond valu ...

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Bond valuation, Bond valuation - General relationships, Bond valuation - The present value relationship, Bond valuation - Coupon yield, Bond valuation - Current yield, Bond valuation - Yield to Maturity, Bond valuation - Bond pricing, Bond valuation - Relative price approach, Bond valuation - Arbitrage free pricing approach

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Bond valuation, Bond valuation - General relationships, Bond valuation - The present value relationship, Bond valuation - Coupon yield, Bond valuation - Current yield, Bond valuation - Yield to Maturity, Bond valuation - Bond pricing, Bond valuation - Relative price approach, Bond valuation - Arbitrage free pricing approach

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Convertible bonds are a combination of bonds and equity. Convertible bonds are bonds with a maturity date and coupon, with a call option where the holder has the right to convert into equity. A convertible bond has several desirable qualities for the investor or trader. Some of them include the following: They provide ‘asset protection’. The value of the convertible bond will only fall to the value of the ‘bond floor’. Convertible bonds can provide the possibility of ‘high equity returns’. Convertible bonds are usually of a ...

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Equity derivative, Equity derivative - What are Equity Derivatives?, Equity derivative - Equity Derivatives - Who are the Players, Equity derivative - Options - A Versatile Tool, Equity derivative - Option fundamentals, Equity derivative - Call options and Put options, Equity derivative - The option contract, Equity derivative - Why trade options, Equity derivative - Options – Traded on an Exchange, Equity derivative - Option valuation: The determinants of an option’s price, Equity derivative - Warrants, Equity derivative - Characteristics of Warrants, Equity derivative - The Pricing of Warrants, Equity derivative - Different Types of Warrants, Equity derivative - Benefits of Trading Warrants, Equity derivative - Risks of Trading Warrants, Equity derivative - Convertible Bonds, Equity derivative - Convertible Bond Terminology - Valuation Parameters, Equity derivative - Behaviour of Convertible Bonds, Equity derivative - Forwards Futures & Other Equity Derivatives, Equity derivative - Forward Contracts & Futures Contracts, Equity derivative - Stock Index Futures, Equity derivative - Swaps

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Interest rate cap and floor - Black. The simplest and most common valuation of interest rate caplets is via the Black model. Under this model we assume that the underlying rate is distributed log-normally with volatility σ. Under this model, a caplet on a LIBOR expiring at t and paying at T has present value V = P(0,T)(FN( ...

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A derivative is a financial tool whose value is derived from the value of an underlying asset. A derivative's value is principally determined by the value of the underlying asset such as: Stocks Stock index Bonds Commodities A derivative can be a: Forward Future Option Warrant Convertible Bond Swap Eq ...

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Equity derivative, Equity derivative - What are Equity Derivatives?, Equity derivative - Equity Derivatives - Who are the Players, Equity derivative - Options - A Versatile Tool, Equity derivative - Option fundamentals, Equity derivative - Call options and Put options, Equity derivative - The option contract, Equity derivative - Why trade options, Equity derivative - Options – Traded on an Exchange, Equity derivative - Option valuation: The determinants of an option’s price, Equity derivative - Warrants, Equity derivative - Characteristics of Warrants, Equity derivative - The Pricing of Warrants, Equity derivative - Different Types of Warrants, Equity derivative - Benefits of Trading Warrants, Equity derivative - Risks of Trading Warrants, Equity derivative - Convertible Bonds, Equity derivative - Convertible Bond Terminology - Valuation Parameters, Equity derivative - Behaviour of Convertible Bonds, Equity derivative - Forwards Futures & Other Equity Derivatives, Equity derivative - Forward Contracts & Futures Contracts, Equity derivative - Stock Index Futures, Equity derivative - Swaps

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Options are commonly regarded as being used for equities. However, they can be used for a wide range of assets eg. stocks, arbitrage, debt, Foreign Exchange, commodities, but not stock indices. Equity derivative - Option fundamentals. An option is a type of derivative where the buyer has the right, but not the obligation, to buy (call option) or sell (put option ...

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Equity derivative, Equity derivative - What are Equity Derivatives?, Equity derivative - Equity Derivatives - Who are the Players, Equity derivative - Options - A Versatile Tool, Equity derivative - Option fundamentals, Equity derivative - Call options and Put options, Equity derivative - The option contract, Equity derivative - Why trade options, Equity derivative - Options – Traded on an Exchange, Equity derivative - Option valuation: The determinants of an option’s price, Equity derivative - Warrants, Equity derivative - Characteristics of Warrants, Equity derivative - The Pricing of Warrants, Equity derivative - Different Types of Warrants, Equity derivative - Benefits of Trading Warrants, Equity derivative - Risks of Trading Warrants, Equity derivative - Convertible Bonds, Equity derivative - Convertible Bond Terminology - Valuation Parameters, Equity derivative - Behaviour of Convertible Bonds, Equity derivative - Forwards Futures & Other Equity Derivatives, Equity derivative - Forward Contracts & Futures Contracts, Equity derivative - Stock Index Futures, Equity derivative - Swaps

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List of finance topics - Discounted cash flow valuation. Cash flow Cash flow from operating activities Operating cash flow Time value of money Present value Future value Actualization Discounting Bond valuation Yield to maturity Duration Convexity Equity valuation Equivalent Annual Cost Net present value Discount rate Capital Asse ...

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An interest rate cap is a derivative in which the buyer receives money at the end of each period in which an interest rate exceeds the agreed strike price. An example of a cap would be an agreement to receive money for each month the LIBOR rate exceeds 2.5%. The interest rate cap can be analyzed as a series of European call options or caplets which exists for each period the cap agreement is in existence. In formulas a caplet payoff on a rate L struck at K is N ...

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List of finance topics - Market and instruments. Capital markets Securities Financial markets Primary market Initial public offering Aftermarket Free market Bull market Bear market Bear market rally Market maker Dow Jones Industrial Average Nasdaq List of ...

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For bonds that have embedded options, Macauley duration and modified duration will not correctly approximate the price move for a change in yield. Consider a bond with an embedded put option. As an example, a $1,000 bond that can be redeemed by the holder at par at points before the bond's maturity. No matter how high interest rates become, the price of the bond will never go below $1,000. This bond's price sensitivity to interest rate changes is different than a non-puttable bond with identical cashflows. Bonds that have embedded options sh ...

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Bond duration, Bond duration - Price, Bond duration - Cash Flow, Bond duration - Macaulay duration, Bond duration - Modified duration, Bond duration - Embedded options and effective duration, Bond duration - Convexity, Bond duration - Average duration, Bond duration - PVO1, Bond duration - Lists

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Macaulay duration is the weighted average maturity of a bond where the weights are the relative discounted cash flows in each period. ...

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Modified duration is calculated as follows: where r is the yield to maturity of the bond, and n is the number of cashflows per year. ...

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List of finance topics - Designations and accreditation. Certified Financial Planner CFA Institute Chartered Financial Analyst Chartered Financial Consultant Canadian Securities Institute Independent Financial Adviser List of finance topics - Fraud. Insider trading Legal Origins Theory Petition mill< ...

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List of finance topics - Designations and accreditation. Certified Financial Planner Chartered Financial Analyst CFA Institute Chartered Financial Consultant Canadian Securities Institute Independent Financial Adviser Chartered Insurance Institute List of finance topics - Fraud. Insider trading Legal Origins Theory Petition mill Ponzi scheme ...

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List of finance topics, List of finance topics - Fundamental financial concepts, List of finance topics - Accounting financial records, List of finance topics - Institutional setting, List of finance topics - Financial services companies, List of finance topics - Banking terms, List of finance topics - Financial regulation, List of finance topics - Designations and accreditation, List of finance topics - Fraud, List of finance topics - Industry bodies, List of finance topics - Regulatory bodies, List of finance topics - United States legislation, List of finance topics - Financial markets, List of finance topics - Market and instruments, List of finance topics - Equity market, List of finance topics - Bond market, List of finance topics - Money market, List of finance topics - Commodity market, List of finance topics - Derivatives market, List of finance topics - Valuation, List of finance topics - Discounted cash flow valuation, List of finance topics - Relative valuation, List of finance topics - Contingent claim valuation, List of finance topics - Corporate finance, List of finance topics - Investment management, List of finance topics - Personal finance, List of finance topics - Public finance, List of finance topics - Insurance, List of finance topics - Economics and finance, List of finance topics - Mathematics and finance, List of finance topics - Time value of money, List of finance topics - Financial mathematics, List of finance topics - Constraint finance, List of finance topics - Virtual finance, List of finance topics - The History of finance, List of finance topics - Financial software tools, List of finance topics - Finding related topics

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List of finance topics - Time value of money. Present value Future value Discounting Net present value Internal rate of return Annuity Perpetuity List of finance topics - Financial mathematics. Probability Probability distribution Binomial distribution Log-normal distribution Expected value Value at risk Risk-neutral measure

Fixed income securities have known cash flows (by definition). Further, each cash flow of a fixed income security can readily be matched by trading in some multiple of a risk free government issue Zero coupon bond with the corresponding maturity. Hence, the price of any fixed income security, must today equal the sum of each of its cash flows discounted at the same rate as the corresponding government securities - i.e. the corresponding risk free rate. Were this not the case, arbitrage would be possible and would bring the price back into line with the price ba ...

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Rational pricing, Rational pricing - Arbitrage mechanics, Rational pricing - Fixed income securities, Rational pricing - Pricing derivatives, Rational pricing - Futures, Rational pricing - Options, Rational pricing - Arbitrage free pricing, Rational pricing - Risk neutral valuation, Rational pricing - Swaps, Rational pricing - Pricing shares

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Interest rate derivative - Simple and Compound Interest and their Usage. In the language of finance, you have assumed that the 10% per annum promised by the bank is a 'simple interest'. You have assumed that the bank will credit Mr Brown's account with 10% of $100 (= $10) in each of the 3 years. So, the total amount that Mr Brown will receive after 3 years will be the principal amount of $100 plus the total interest which has been cre ...

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Suppose I own an option to buy a share in XYZ Corp. for $100 in one months' time. If the actual stock price at the time is $105 then I would exercise (i.e. use) my option and buy the stock from whomever sold me the option for $100. I could then either keep the stock, or sell it in the open market for $105, making a profit of $5. However, if, in one month's time the stock price was only $95, I would not exercise my option, for if I really wanted a share in XYZ Corp., I could buy it in the open market for $95 rathe ...

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Stock option, Stock option - Valuation, Stock option - Trading, Stock option - Employee Stock Options

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The most common way to trade stock options is trading standardized options contracts that are listed by various futures and options exchanges -- there are currently six exchanges in the United States that list standardized options contracts based on underlying stocks -- The Philadelphia Stock Exchange (PHLX), American Stock Exchange (AMEX) in New York City, the Pacific Exchange (PCX) in San Francisco, and the Chicago Board Options Exchange (CBOE) which are all open-outcry marketplaces, and the International Securities Exchange (ISE) and Bost ...

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Stock option, Stock option - Valuation, Stock option - Trading, Stock option - Employee Stock Options

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Main article: Employee stock option Stock options for the company's own stock are often offered to upper-level employees as part of the executive compensation package, especially by American business corporations. It is also sometimes done for non-executive employees, especially in the technology sector, in order to give all employees an incentive to help the company become more profita ...

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Stock option, Stock option - Valuation, Stock option - Trading, Stock option - Employee Stock Options

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