IThe construction of an asset and a liability that are subject to offsetting changes in value.

Immunisation

Implied DistributionA distribution for future asset prices implied from option prices.

Implied Repo RateThe implied from the price of a Treasury Bill and a Treasury Bill's futures price. (see also Repo Rate).

Implied VolatilityVolatility implied from an option price using Black Scholes or similar model. (see also Black Scholes Option Pricing Model ).

Indexed Bonds

Bonds whose payments are linked to an index (eg consumer price index).

Index FuturesA futures contract based on an Index (eg a Stock Index).

Index OptionAn option contract based on an Index (eg a Stock Index)

Initial MarginCash required by a futures Trader at the time of entering a trade. (see also Margin Call).

Interest-rate CapAn option that provides a payoff when a specified interest rate is above a pre-defined level. The interest rate is a floating rate that is reset periodically.

Interest-rate CollarThe combination of an interest rate cap and an interest rate floor.

Interest-rate DerivativeA derivative with a payoff dependent upon future interest rates.

Interest-rate FloorAn option that provides a payoff when a specified interest rate is below a pre-defined level. The interest rate is a floating rate that is reset periodically.

Interest-rate OptionAn option with a payoff dependent upon future interest rates.

Interest-rate SwapThe exchange of a fixed rate of interest on a notional principal for a floating rate of interest on the same notional principal.

Internal Rate of ReturnDiscount rate at which an investment has a zero net present value.

In-the-money OptionAn option that would be worth exercising if it was exercised immediately, ie:

- A Call Option where the asset price is currently greater than the strike price; or
- A Put Option where the asset price is currently less than the strike price.
Intrinsic Value

- For a call option this is the greater of the excess of the asset price over the strike price and zero;
- For a call option this is the greater of the excess of the strike price over the asset price and zero.
Ito Process

A stochastic process where the change in a variable during each short period of time, t, has a normal distribution. The mean and variance of the distribution are proportional to t, and are not necessarily constant.

Ito's Lemma

A result that allows the stochastic process for a function of a variable to be calculated for the variable itself.

Click here to return to Dictionary main page