Price Parameter Specification

Definition

Price Parameter Specification. The specification of a price as a quote of the primary parameter passed into an algorithm used to calculate the Present Value of the relevant Asset.

Two significant examples of this pricing method are 1. Yields a yield is expressed as the annualized interest Rate that an investor requires for an investment. In the case of a loan the terms are set up so that the interest rate (coupon) equals that required yield and therefore the present value is equal to the loan principal. For a security, however the coupon rate is already determined so the required yield is applied to the projected cash flows in order to calculate a present value ( the price an investor is prepared to pay for the specified cash flows) Typically the required yield for a debt security is the yield to maturity 2. Volatilities in reality a volatility (used to calculate the fair value of an option) is a measure of the variability of the price of the transaction over which the beneficiary of the option has control. This is the primary parameter passed into an option valuation (eg Black-Scholes, Binomial) Notes Origin: NAB

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This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with, or correctly interprets, the concepts covered by the FIBO ontology.