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Mandarin collar
The Mandarin Collar combines a Range Forward with the purchase of a Range binary structure, such that should the Spot stay within the prescribed Range, the proceeds of the Range Forward are enhanced by the payout amount of the Range binary. If either of the...
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Margrabe option
See outperformance Option
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Mark-to-market
This is the value of a financial instrument according to current market rates.
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Market model of interest rates
A special case of the Heath-Jarrow-Morton model due to Brace, Gatarek and Musiela in which the term structure of Interest rates is modelled in terms of simple Libor rates (which are lognormally distributed with respect to Forward measure) rather than instantaneous...
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Market risk
Exposure to a change in the value of some market variable, such as Interest rates or foreign Exchange rates, Equity or commodity prices. For holders of a derivatives Position, market Risk may be passed through from a change in the value of the Underlying to...
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Market value
See Replacement cost
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Martingale
A probabilistic interpretation of the payout of a ‘fair game.’ The expected gain at any point in the Future is equal to the actual gain NOW. See also Stochastic process
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Mean reversion
The phenomenon by which Interest rates and Volatility appear to move back to a Long-run average level. Interest rates’ mean-reverting tendency is one explanation for the behaviour of the term structure of Volatility. Some Interest rate models incorporate mean...
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Medium-term note
A medium-term note is a Debt instrument with a maturity of between three and seven years, which may pay fixed or variable coupons. These Notes can be used to construct structured Notes by embedding derivatives to create structured coupons which appeal to investors.
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Mid-Atlantic option
See Bermudan Option
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Monte Carlo Simulation
A method of determining the value of a Derivative by simulating the evolution of the Underlying variable(s) many times over. The discounted average outcome of the simulation gives an approximation of the Derivative’s value. This method may be used to value...
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Mortgage swap
An asset Swap attached to fixed-rate mortgage payments. Mortgage swaps allow investors to enjoy the flows from a Portfolio of mortgages without taking a mortgage asset on to their Balance Sheet. The principal reduces if and when the outstanding mortgage principal...
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Mortgage-backed security
See Asset backed security
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Moving strike option
An Option in which the strike is reset over time, such as an Interest rate Cap in which the strike is reset for the next period at the current Interest rate plus a pre-agreed spread. See also Cliquet Option
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Multi-factor model
Any model in which there are two or more uncertain parameters in the Option price (one-factor models incorporate only one cause of uncertainty: the Future price). Multi-factor models are useful for two main reasons. Firstly, they permit more realistic modelling,...
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Multiple strike option
See outperformance Option
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Municipal swap
A Swap in which the floating payments are based on an index of Tax-exempt US municipal bonds, such as J.J. Kenny.
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