Page 115 - PRIAA Glossary

MONTE CARLO SIMULATION
A method of pricing derivatives by simulating the evolution
of the underlying variable (or variables) many times over. This method provides a range of possible outcomes and the probabilities that they will occur for any choice of action. The average outcome of the simulation gives an approximation of the derivative’s value. Monte Carlo is useful in the valuation of complex derivatives for which exact analytical solutions have not been found; otherwise, it can be highly computationally intensive. Monte Carlo simulation can also be applied to a portfolio of instruments, rather than a single instrument, to estimate the value-at-risk (VaR) of that portfolio.
MORATORIUM
A period of time where a specific activity is suspended until a change in circumstances permits removal of the suspension. For example, a borrower can declare a moratorium and delay the payments of principle and/or interest on a loan.
MOUNTAIN RANGE OPTION
A style of exotic option which bases the value of the option on the performance of several underlying assets over a predetermined time period. There are five main types of mountain range option: Altiplano, Himalaya, Annapurna, Atlas and Everest.
MULTILATERAL TRADING FACILITY (MTF)
A trading venue authorised by MiFID with fewer rules
than a regulated market (i.e., exchange) and no listing requirements. An MTF has been described as “exchange lite”. MTFs are required to follow a set of defined operating rules. They are also required to maintain pre-trade and post- trade transparency—the public dissemination of real-time quotes and trades.
MULTIPLE EXERCISE
A term relating to American-style options where the buyer has the right to execute the trade in tranches by exercising an agreed number of options on each of the exercise dates. If multiple exercise applies, the confirmation will state the minimum, maximum and multiple integral numbers of options that may be exercised on any given day.
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