Swaption is the option to enter into an interest rate swap. In exchange for an option premium, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date.
Bermuda Swaption is a swaption with predefined limitations on exercise
Swap Dealer :
A swap dealer in investment banking is an individual who acts as the counter party in a swap agreement for the fee (called a spread).
Asset swap is similar in structure to a plain vanilla swap, the key difference is the underlying of the swap contract. Rather than regular fixed and floating loan interest rates being swapped, fixed and floating investments are being exchanged.
A swap that involves the exchange of principal and interest in one currency for the same in another currency. It is considered to be a foreign exchange transaction and is not required by law to be shown on the balance sheet.
Financial Risk Terms:
IASC – International Accounting Standard Committee. Started in 1973 to improve global accounting standards
IASB – International Accounting standards Board. Started in 2001
IFRS – International Financial Reporting Standards. Series of pronouncements(standards/publications) from IASB.
IAS – International Accounting Standards. IFRS is improved on a continuous basis and is now popularly called IAS.
VaR – Value at risk
Regulatory capital – credit risk capital held to cover unexpected losses
Sector concentration risk – Banks portfolio has concentration on certain sector(say energy,metal).Concentration risk that has larger contribution to the economic capital.
Binomial expansion technique – The approach that maps an actual correlated portfolio to a hypothetical portfolio of uncorrelated exposures
CRM – credit risk mitigation
Risk management starts with definition of the term risk. So, what does the terminology risk really mean?
Risk is something unexpected. To put it in simple terms it refers to variables. A variable can never be constant
1) Business Risk -Variables include factors internal and external to business – competition. market positioning, brand (yes brand is also at risk and business needs to maintain the quality at all time), economy, strategy to name a few
2) Project – Any project has risk as its internal component and has risk management team to handle project risk to meet deadlines and deliver the agreed upon product/service
3) Financial Risk – Any factors that will cause unexpected swings in price of a commodity, product, service, markets, operations etc that have a financial impact is said to be a financial risk. Finance runs on major concepts like asset , liability, earning, spending,budget etc. Hence unexpected variation in asset valuation/earning is found to pose financial risk