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Exploding Delta

A state of the delta of an option which makes the variation of an in-the-money option's hedge ratio extremely wide just prior to expiration. It is...

Pin Risk

The risk that arises when the price of an asset underlying an option approaches its strike price as it gets closer to expiration date. This is...

Hard Risk

A threat or opportunity that is by nature quantifiable or can be quantified using typical risk management tools and analysis....

Hazard Rate

The instantaneous probability of default (conditional default rate) by an issuer. This risk management tool measures the probability of default...

Quanto Risk

A type of market risk that arises from unfavorable changes in the correlation between the price of an asset underlying a quanto option and the volatility...

Denomination Transformation

A type of transformation that is performed by banks and other depositary institutions (financial intermediaries) whereby the small amounts deposited with them are transformed...

Limited Risk Option

It is defined as positions which are taken in complex options that virtually impose no risk or a limited deal of risk such as long option, long...

LRO

It stands for limited-risk options, i.e., positions which are taken in complex options that virtually impose no risk or a limited deal of risk such as long option, long...

Market Risk

The risk that arises from any fluctuations in the fair value of a financial instrument or future cash flows associated...

Leverage Risk

A hedge fund can borrow in order to enhance its overall returns. Borrowing, or using leverage, is a source of both volatility risk and financing...