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Accreting
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A description, applicable to a variety of instruments, denoting that the notional principal increase successively over the life of the instrument, eg, caps, collars, swaps and swaptions. If the increase takes place in increments, the instrument may be known...
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Accrual period
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Period over which net payment or receipt pertaining to swaps is accrued. It is inclusive of the start date and runs to the end date without including the end date.
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Alpha
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Alpha is used to measure the performance of a fund in relation to its Benchmark. An Alpha that measures 2.0 indicates a fund has achieved a return 2% better than could have been expected from its Benchmark.
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Alternative Risk Transfert
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An approach to Risk management combining capital markets, reinsurance and investment banking techniques that allows a party to either free itself from risks not easily transferred via traditional insurance, or alternatively cover such risks in a non-traditional...
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Altiplano
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An Altiplano is a type of mountain Range structure, which offers investors a fixed payout at he end of the product’s life on the condition that none of the assets that make up the Underlying basket have decreased below a given level. If the level is breached,...
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Amortising
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A description, applicable to a variety of instruments, denoting that the notional principal decreases successively over the life of an instrument, eg, amortising Swap, index amortising rate Swap, amortising Cap, amortising Collar, amortising Swaption. If the...
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Annapurna
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An Annapurna is a kind of mountain Range product, which offers a return equal to the greater of a capital guarantee plus a fixed Coupon and a participation in the performance of the Underlying basket. The level of the fixed Coupon and of the participation...
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Arbitrage
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A guaranteed or riskless profit from simultaneously buying and selling instruments that are perfect equivalents, the first being cheaper than the second.
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Arbitrage-free model
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Any model that does not allow Arbitrage on the Underlying variable. Some simple early models assumed parallel shifts in the Yield curve, but the varying yields of different duration bonds could be arbitraged using butterfly strategies.
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Asset allocation
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The Distribution of investment funds within a single asset class or across a number of asset classes (such as equities, bonds and commodities) with the aim of diversifying Risk or adding value to a Portfolio.
See also Overlay
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Asset swap
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A package of a Cash credit instrument and a corresponding Swap that transforms the Cash flows of the non-Par instrument (Bond or loan), into a Par (floating Interest rate) structure. Asset swaps typically transform fixed-rate bonds into Par floaters, bearing...
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Asset/ liability management
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The practice of matching the term structure and cashflows of an organisation’s asset and liability portfolios in order to maximise returns and minimise Risk. An institutional example of this would be a bank converting a fixed-rate loan (asset) by utilising...
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Autocap
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A standard Cap consists of a series of caplets Hedging Future floating rate payments. However, autocaps only provide a Hedge for the first pre-specified number of In-the-money caplets after which the Option expires, and so are a cheaper alternative to caps.
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