Variance Swap Definition A variance swap is a financial derivative that allows investors to speculate on or hedge against changes in the volatility of an underlying asset. It is a type of swap contract where the payoff is determined by the difference between the realized variance of the underlying asset … …
What Are Multilateral Trading Facilities (MTFs)? Multilateral Trading Facilities (MTFs) are alternative trading venues that provide a platform for the trading of financial instruments. They are designed to bring together buyers and sellers in a transparent and efficient manner, offering increased liquidity and price discovery. How do MTFs work? MTFs … …
Total Return Swap A total return swap is a type of derivative contract in which two parties agree to exchange the total return on a particular asset or portfolio of assets. This type of swap allows investors to gain exposure to the returns of an asset without actually owning it. … …
The International Swaps and Derivatives Association (ISDA): Explained The International Swaps and Derivatives Association (ISDA) is a global trade association representing participants in the privately negotiated derivatives industry. It was founded in 1985 and has since become a key player in the financial industry. ISDA’s main purpose is to promote … …
Types and Styles of Swaptions A swaption, or swap option, is a financial derivative that gives the holder the right, but not the obligation, to enter into a swap agreement. Swaptions are commonly used in the financial markets to manage interest rate risk and to speculate on future interest rate … …
How Swap Rate Works At its core, a swap rate is the fixed interest rate that is exchanged between two parties in an interest rate swap. In an interest rate swap, two parties agree to exchange interest payments on a specified principal amount for a predetermined period of time. One … …
Qualified Eligible Participant (QEP): What it Means and How it Works A Qualified Eligible Participant (QEP) is an individual or entity that meets certain criteria set by the Commodity Futures Trading Commission (CFTC) to participate in certain types of investment opportunities. This designation is primarily used in the context of … …
What is Over-Hedging? However, over-hedging occurs when the hedging positions taken are more than what is needed to protect against the potential losses. This can lead to unintended consequences and may result in additional costs or missed opportunities for the hedger. Mechanics of Over-Hedging The mechanics of over-hedging can vary … …
Letter of Guarantee: Definition, Purposes, and Example A letter of guarantee is a legal document issued by a financial institution or a third party on behalf of a borrower or a debtor. It serves as a promise to fulfill a specific obligation or to compensate for any losses or damages … …
What is an Inflation Swap? An inflation swap is a financial derivative that allows market participants to hedge against or speculate on changes in inflation rates. It is a type of swap contract where two parties agree to exchange cash flows based on an inflation index. The purpose of an … …
Hollywood Stock Exchange HSX: Meaning, Pros And Cons, Example The Hollywood Stock Exchange (HSX) is a virtual trading platform that allows users to buy and sell virtual shares of movies, actors, and other entertainment-related assets. It operates on the concept of a stock market, where users can trade virtual stocks … …
What is a Hedge? A hedge is an investment strategy that is used to reduce or offset the risk of adverse price movements in an asset. It involves taking an offsetting position in a related security or derivative, such as options or futures contracts, to protect against potential losses. Hedging … …
What is General Collateral Financing Trades (GCF)? General Collateral Financing Trades (GCF) is a concept and mechanism used in the financial industry to facilitate short-term borrowing and lending of securities. It is a type of repurchase agreement (repo) that allows market participants to obtain funding by pledging high-quality securities as … …
Forward Price Calculation: Definition In finance, the concept of forward price calculation refers to the process of determining the price at which a financial instrument, such as a commodity, currency, or security, can be bought or sold for delivery at a future date. The forward price is based on the … …
What are Forward Points in Currency? Forward points in currency refer to the difference between the spot exchange rate and the forward exchange rate of a particular currency pair. They are used to calculate the cost or premium of a forward contract, which is an agreement to buy or sell … …
Financial Engineering: Definition Financial engineering is a multidisciplinary field that combines principles of finance, mathematics, statistics, and computer science to design and create innovative financial products, strategies, and solutions. It involves the application of quantitative techniques and mathematical models to analyze and solve complex financial problems. The goal of financial … …
Equity Swap: Definition and Basics An equity swap is a financial derivative contract in which two parties agree to exchange the future cash flows of a specified equity instrument. It is a type of swap agreement that allows investors to gain exposure to the performance of an underlying equity without … …
Equity Derivative: Definition and Usage An equity derivative is a financial instrument whose value is derived from the price of an underlying equity security. It is a type of derivative contract that allows investors to speculate on the price movements of individual stocks or entire equity indices without owning the … …
Covered Interest Rate Parity: Definition, Calculation, and Example In the world of finance, covered interest rate parity is a concept that helps determine the relationship between interest rates and exchange rates in the foreign exchange market. It is a fundamental principle that plays a crucial role in international finance and … …
Asset Swap Definition: How It Works and Calculating the Spread An asset swap is a financial instrument that allows investors to exchange the cash flows of a bond or other fixed income security for the cash flows of a different asset, typically a swap spread. This can be a useful … …