Page 124 - PRIAA Glossary

OPERATIONAL RISK
The risk of loss resulting from inadequate or failed internal processes, people and systems or from the impact of external events.
OPTION
The right, but not the obligation, to buy (call) or sell (put)
a financial instrument at an agreed upon price whether during a certain period of time (American), on a specific date (European), or on a number of specific dates in the exercise period (Bermuda option).
OPTION ADJUSTED SPREAD (OAS)
A way to evaluate the prospect (or track the performance)
of investment in a security with an embedded option. This measure allows analysts to take into account the price of the instrument and the embedded option separately to arrive at a more robust decision.
OPTION BUYER
The party who buys an option, pays a premium and, in return, is granted the right, but not the obligation, to buy or sell the relevant underlying security.
OPTION DISPERSION
A structure in which one party sells an option on an index
or basket of underlying assets and simultaneously buys individual options on each of the index constituents or basket components. The buyer of this structure will be in-the- money only if the index constituents or basket components are negatively correlated. An option dispersion is similar to a correlation swap.
OPTION GRANTOR
The person who originates an option contract by promising to perform a certain obligation in return for receipt of the premium of the option from the option buyer. Also known as “option writer” or “option seller”.
122