T/N: See tom/next.

Tail: The exposure to interest rates over a forward-forward period arising from a mismatched position (such as a two-month borrowing against a three-month loan). In the FX market, a forward foreign exchange dealer's exposure to spot movements.

Tap: The issue of a gilt for exceptional market management reasons and not on a pre-announced schedule.

Tenor: The term to maturity of a financial instrument.

Term: The time between the beginning and end of a deal or investment.

Term structure of interest rates: a plot of spot interest rates over time.

Theta: The change in an option's value relative to a change in the time left to expiry.

Tick: The minimum change allowed in a futures price. Also, in some bond markets, 1/32nd of a point, or 0.03125.

Time deposit: A non-negotiable deposit for a specific term.

Time option: A forward currency deal in which the value date is set to be within a period rather than on a particular day. The customer sets the exact date two working days before settlement. Time value of money: The concept that a future cash flow can be valued as the amount of money which it is necessary to invest now in order to achieve that cash flow in the future. See future value, present value.

Today/tomorrow: See overnight.

Tom/next: "Tomorrow to the next". A transaction from the next working day ("tomorrow") until the day after ("next day" - i.e., spot in the foreign exchange market).

Total return swap: Swap agreement in which the total return of bank loans or credit-sensitive securities is exchanged for some other cash flow usually tied to Libor, or other loans, or credit-sensitive securities. It allows participants effectively to go long or short the credit risk of the underlying asset.

Traded option: Option that is listed on and cleared by an exchange, with standard terms and delivery months.

Tranche: One of a series of two or more issues with the same coupon rate and maturity date. The tranches become fungible at a future date, usually just after the first coupon date. In a structured product, different bonds in the same securitisation, usually with different credit ratings and coupon rates.

Transaction risk: Extent to which the value of transactions that have already been agreed is affected by market risk.

Transparent: A term used to refer to how clear asset prices are in a market. A transparent market is one in which a majority of market participants are aware of what level a particular bond or instrument is trading.

Treasury bill: A short-term security issued by a government, generally with a zero coupon.

Trigger option: See barrier option.

Tunnel: The same as collar.

Tunnel options: Set of collars, typically zero-cost, covering a series of maturities from the current date. They might, for example, be for dates 3, 6, 9 or 12 months ahead. The special feature of a tunnel option is that the strike price on both sets of options is constant.

Uncovered option: When the writer of the option does not own the underlying security. Also known as a naked option.

Undated gilts: Gilts for which there is no final date by which the gilt must be redeemed.

Underlying: The underlying of a futures or option contract is the commodity or financial instrument on which the contract depends. The underlying for a bond option is the bond; the underlying for a short-term interest rate futures contract is typically a three-month deposit.

Underwriting: An arrangement by which a company is guaranteed that an issue of debt (bonds) will raise a given amount of cash. Underwriting is carried out by investment banks, who undertake to purchase any part of the debt issue not taken up by the public. A commission is charged for this service.

Unexpected default rate: The distribution of future default rates is often characterised in terms of an expected default rate (e.g., 0.05%) and a worst-case default rate (e.g., 1.05%). The difference between the worst-case default rate and the expected default rate is often termed the "unexpected default" (that is: 1% = (1.05 - 0.05%)).

Unexpected loss: The distribution of credit losses associated with a derivative instrument is often characterised in terms of an expected loss or a worst-case loss. The unexpected loss associated with an instrument is the difference between these two measures.

Up-and-away option: See up-and-out option.

Up-and-in option: Type of barrier option which is activated if the value of the underlying goes above a predetermined level. (See also down-and-in option).

Up-and-out option: Type of barrier option that is extinguished if the value of the underlying goes above a predetermined level. See also down-and-out option.

Value date: The date on which a deal is to be consummated. In some bond markets, the value date for coupon accruals can sometimes differ from the settlement date, as the latter can only be a working day.

Value-at-risk (VAR): Formally, the probabilistic bound of market losses over a given period of time (known as the holding period) expressed in terms of a specified degree of certainty (known as the confidence interval). Put more simply, the VAR is the worst-case loss that would be expected over the holding period within the probability set out by the confidence interval. Larger losses are possible but with a low probability. For instance, a portfolio whose VAR is $20 million over a one-day holding period, with a 95% confidence interval, would have only a 5% chance of suffering an overnight loss greater than $20 million.

Vanilla: A vanilla transaction is a straightforward one.

VAR: See value-at-risk.

Variable currency: Exchange rates are quoted in terms of the number of units of one currency (the variable or counter currency) which corresponds to one unit of the other currency (the base currency).

Variance: A measure of how much the values of something fluctuate around its mean value. Defined as the average of See standard deviation.

Variance-covariance methodology: Methodology for calculating the value-at-risk of a portfolio as a function of the volatility of each asset or liability position in the portfolio and the correlation between the positions.

Variation margin: The band agreed between the parties to a repo transaction at the outset within which the value of the collateral may fluctuate before triggering a right to call for cash or securities to reinstate the initial margin on the repo transaction.

Vega: The change in an option's value relative to a change in the underlying's volatility.

Volatility: The standard deviation of the continuously compounded return on the underlying. Volatility is generally annualised.See historic volatility, implied volatility

Warrant: A security giving the holder a right to subscribe to a share or bond at a given price and from a certain date. If this right is not exercised before the maturity date, the warrant will expire worthless.

Warrant-driven swap: Swap with a warrant attached allowing the issuer of the fixed-rate bond to go on paying a floating rate in the event that he or she exercises another warrant allowing him or her to prolong the life of the bond.

When-issued trading: Trading a bond before the issue date; no interest is accrued during this period. Also known as the "grey market".

Worst-case (credit risk) exposure: Estimate of the highest positive market value a derivative contract or portfolio is likely to attain at a given moment or period in the future, with a given level of confidence.

Worst-case (credit risk) loss: Estimate of the largest amount a derivative counterparty is likely to lose, with a given level of probability, as a result of default from a derivatives contract or portfolio.

Worst-case default rate: The highest rates of default that are likely to occur at a given moment or period in the future, with a given level of confidence.

Write: To sell an option is to write it. The person selling an option is known as the writer.

Writer: The same as "seller" of an option.

X: Used to denote the strike price of an option; sometimes this is denoted using the term K or S.

Yield: The interest rate which can be earned on an investment, currently quoted by the market or implied by the current market price for the investment - as opposed to the coupon paid by an issuer on a security, which is based on the coupon rate and the face value. For a bond, generally the same as yield to maturity unless otherwise specified.

Yield curve: Graphical representation of the maturity structure of interest rates, plotting yields of bonds that are all of the same class or credit quality against the maturity of the bonds.

Yield to equivalent life: The same as yield to maturity for a bond with partial redemptions.

Yield to maturity: The internal rate of return of a bond - the yield necessary to discount all the bond's cash flows to an NPV equal to its current price. See current yield, gross redemption yield, simple yield to maturity.

Yield-curve option: Option that allows purchasers to take a view on a yield curve without having to take a view about a market's direction.

Yield-curve swap: Swap in which the index rates of the two interest streams are at different points on the yield curve. Both payments are refixed with the same frequency whatever the index rate.

YTM: See yield to maturity.

Zero-cost collar: A collar where the premiums paid and received are equal, giving a net zero cost.

Zero-coupon: A zero-coupon security is one that does not pay a coupon. Its price is correspondingly less to compensate for this. A zero-coupon yield is the yield which a zero-coupon investment for that term would have if it were consistent with the par yield curve.

Zero-coupon bond: Bond on which no coupon is paid. It is either issued at a discount or redeemed at a premium to face value.

Zero-coupon swap: Swap converting the payment pattern of a zero-coupon bond, either to that of a normal, coupon-paying fixed-rate bond or to a floating rate.

Zero-premium option: Generic term for options for which there is no premium, either because the buyer undertakes to forgo a percentage of any gain or because the buyer offsets the cost by writing other options.

Z-spread: The z-spread is a spread of a bond yield to a yield curve. It is the basis point spread that would need to be added to the implied spot yield curve such that the discounted cashflows of a bond are equal to its present value (its current market price). Each bond cashflow would be discounted by the relevant spot rate for its maturity term. This differs from a conventional swap spread which has been calculated using the bond's yield-to-maturity to discount all its cashflows. Both spreads can be viewed as the coupon of a swap market annuity of equivalent credit risk of the bond being valued.