Volatility swap

Similar financial terms

Volatility
A measure of the unceratinty or risk in the future price of an asset. Typically volatility is measured by the standard deviation or variance of returns on the asset. Also, volatility is a variable that appears in option pricing formulas. In the option pricing formula, it denotes the volatility of the underlying asset return from now to the expiration of the option.

Volatility Matrix
A table showing the variation of implied volatilities with strike price and time to maturity.

Volatility term structure
The volatility term structure is the variation of implied volatility with time to maturity.

Volatility risk
The risk in the value of options portfolios due to the unpredictable changes in the volatility of the underlying asset.

Reward-to-volatility ratio
Ratio of excess return to portfolio standard deviation.

Volatility Quote Trading
Refers to the quoting of bids and offers on option contracts in terms of their implied volatilities rather than as prices.

Amortizing swap
An interest rate swap with a decreasing notional principal amount.

Total return swap
A total return swap is an exchange of a return on a debt security for LIBOR plus a spread. The return on the debt security includes income such as coupons and the change in its value.

Swaption
A swaption is an option to enter into an interest rate swap where a specified fixed rate is exchanged for floating.

Swap rate
The fixed rate in an interest rate swap that causes the swap to have a value of zero. It can be thought of as the Internal Rate of Return (IRR) of a swap.

Swap
A swap is an agreement to exchange a series of variable cash flows for a fixed amount of cash flows in the future according to a prearranged formula.

Step-up swap
A swap where the principal increases over time in a predetermined way.

LIBOR-in-Arrears Swap
A swap where the interest paid on a date is determined by the interest rate observed on that date (not by the interest observed on the previous payment date).

Amortizing interest rate swap
Swap in which the principal or national amount rises (falls) as interest rates rise (decline).

Tax swap
Swapping two similar bonds to receive a tax benefit.

Swap sale
A swap sale (also referred to as a swap assignment) is a transaction that ends one counterparty's role in an interest rate swap by substituting a new counterparty whose credit is acceptable to the other original counterparty.

Swap reversal
An interest rate swap designed to end a counterparty's role in another interest rate swap, accomplished by counterbalancing the original swap in maturity, reference rate, and notional amount.

Swap buy-back
The sale of an interest rate swap by one counterparty to the other, effectively ending the swap.

Substitution swap
A swap in which a money manager exchanges one bond for another bond that is similar in terms of coupon, maturity, and credit quality, but offers a higher yield.

Rate anticipation swaps
An exchange of bonds in a portfolio for new bonds that will achieve the target portfolio duration, based on the investor's assumptions about future changes in interest rates.

Put swaption
A financial tool in which the buyer has the right, or option, to enter into a swap as a floatingrate payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate payer.

Pure yield pickup swap
Moving to higher yield bonds.

Liability swap
An interest rate swap used to alter the cash flow characteristics of an institution's liabilities so as to provide a better match with its assets.

Call swaption
A swaption in which the buyer has the right to enter into a swap as a fixed-rate payer. The writer therefore becomes the fixed-rate receiver/floating rate payer.

Circus swap
A fixed rate currency swap against floating U.S. dollar LIBOR payments.

Currency swap
An agreement to swap a series of specified payment obligations denominated in one currency for a series of specified payment obligations denominated in a different currency.