Glossary – Finance

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There are 13 names in this directory beginning with the letter B.
Back Testing
Testing a value-at-risk or other model using historical data.

Backwards Induction
A procedure for working from the end of a tree to its beginning in order to value an option.

Basis Risk
The risk to a hedger arising from uncertainty about the basis at a future time.

Basket Option
An option that provides a payoff dependent on the value of a portfolio of assets.

Bermudan Option
An option that can be exercised on specified dates during its life.

A measure of the systematic risk of an asset.

Bid-Ask Spread
The amount by which the ask price exceeds the bid price.

Binary Option
An option with a discontinuous payoff: for example, a cash-or-nothing option or an asset-or-nothing option.

Binomial Model
A model where the price of an asset is monitored over successive short periods of time. In each short period it is assumed that only two price movements are possible.

Binomial Tree
A tree that represents how an asset price can evolve under the binomial model.

Black`s Model
An extension of the Black-Scholes model for valuing European options on futures contracts.

Black-Scholes Model
A model for pricing European options on stocks, developed by Fischer Black, Myron Shcoles and Robert Merton.

Bond Option
An option where a bond is the underlying asset.
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