Glossary
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Z
A Greek letter used in the financial industry to represent the sensitivity
of an option’s price to changes in the price volatility of
the underlying.
A measure of duration that calculates effective or empirical duration
by changing the market rate for one specific maturity point on the
yield curve while holding all other variables constant. May be done
as part of a series of calculations that separately and sequentially
vary the yields for two or more maturity points on the yield curve.
Sets of partial durations for multiple points on the same yield
curve will sum to a value that is usually close to the overall effective
duration. Also known as reshaping duration. Key rate duration is
the most common type of partial duration and those terms are often
used as synonyms. See effective duration, empirical duration and
partial duration.
(1) An informal name for some re-REMICs created when tranches of
existing CMO REMICs are combined and used to collateralize new securities.
A re-REMIC that combines highly volatile tranches is called a kitchen
sink bond. Kitchen sink bonds are very high-risk securities.
(2) An old term from CDOs.
The points on a yield curve for which there are observable prices
for traded instruments. Rates for all maturity points between the
knot points are "filled in" using any one of a variety
of techniques for yield curve smoothing. See smoothing.
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