APPENDIX D
Glossary of Derivatives-Related Terms1
accrued interest
The amount of coupon interest income accumulated on a coupon-bearing bond since the last coupon payment date.
all-or-none (AON) order
An order that must be filled in its entirety or not at all.
American option
See American-style option.
American-style option
An option that can be exercised at any time up to and including the expiration day.
amortizing swap
A swap whose notional principal decreases through time.
anticipatory hedge
A hedge placed in anticipation of making a transaction in spot market on future date (e.g., a breakfast cereal producer may want to lock in the price of the grain that he needs three months from now).
arbitrage
The simultaneous purchase or sale of perfect substitutes at different prices.
arbitrager
Someone who engages in arbitrage.
arbitrageur
Same as arbitrager.
Asian option
An option whose payoff is determined by the average price of asset during specified period.
ask price
The price at which a market maker stands ready to sell.
asset allocation
The investment decision regarding how to allocate funds across different asset categories (e.g., stocks, bonds, commodities, real estate).
asset-or-nothing option
An option whose payoff is the underlying asset contingent on the underlying asset price being greater than or less than the critical price.
assignment
The procedure by which option seller is notified of buyer's intention to exercise.
at-the-money
An option whose exercise price is approximately ...
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