Commercial Banking Ch 9

Standard deviation affecting option payoff likelihood

Immediate value of an option if exercised

Buys options, has the right but not obligation to exercise

Exercisable from writing to expiration; flexible

Option not profitable when stock price is below strike price

Option with stock price equal to strike price

Individuals engaging in arbitrage practices for profit

Account where parties to a futures contract post deposits

Using derivatives to reduce risk by offsetting potential losses

Using derivatives to gamble on future price movements

Option giving the holder the right to buy an asset at a specified price

Option giving the holder the right to sell an asset at a specified price

Standardized forward contract traded on an organized exchange

Customized agreement between buyer and seller for future exchange

Financial instruments whose value depends on another asset

Credit derivatives insuring against borrower default

Measure of stock market volatility

Difference between benchmark and swap rate

Agreed-upon amount in interest-rate swaps

Agreements exchanging interest payments

Options with high intrinsic value

Price at which option holder can buy/sell asset

Employees' right to buy company shares at set price

Value increases with risk being insured

Value based on time to expiration and volatility

Developed to determine intrinsic and time value changes

Regulatory standards ensure accuracy; diversification reduces risk

Increased volatility raises the time value of options

Intrinsic value + Time value of the option

Fee for potential benefits beyond intrinsic value

Dealers who facilitate options trading by owning and buying assets

Sells options, obligated to fulfill terms if exercised

Exercisable only on expiration date; less flexible

Option profitable when stock price exceeds strike price

Profiting from price differences by buying and selling simultaneously

Buying low, selling high to equalize prices in different markets

Refuse trades with risky clients, ensure risk premium, and offset trades

Facilitates CPP monitoring and risk premium imposition

Entity that centralizes trading and monitors risk in financial markets

Using borrowed funds to increase potential returns

Entity that acts as a counterparty to both sides of a futures contract

Daily adjustment of gains and losses in a futures contract

Contracts used to manage or conceal risk by exchanging cash flows