Glossary

  • Gamma

    The rate of change in the delta of an option for a small change in the underlying. The rate of change is greatest when an option is at-the-money and decreases as the price of the underlying moves further away from the strike price in either direction. A long gamma position is one in which a trader is long options. For a position that is short gamma, the opposite holds. Gamma can be hedged by mirroring theoptions position. Alternatively, a trader may choose to adjust the position in the underlying continually in order to maintain delta neutrality.

  • Garman-Kohlhagen Model

    A model developed to price European-style options on spot foreign exchange rates. The model is based upon the Black-Scholes model with the addition of an extra interest rate factor for the foreign currency.

  • Geared barrier option

    A type of in-the-money barrier option where the barrier is in-the-money and lies between the strike and the underlying spot rate.

  • Gearing

    Gearing refers to the degree of exposure of a product to movements in the underlying index. A product with 100% gearing would have returns exactly equal to any rise in the index. A product's gearing is also called participation.

  • Geometric Brownian motion

    Geometric Brownian motion is a model frequently used for the diffusion process followed by asset prices. Standard Brownian motion is a random walk process with Gaussian increments; that is, changes in the asset price are normally distributed. The term geometric means it is the proportional change in the asset price (as opposed to the absolute level) that is normally distributed. This gives the model useful properties, in that the asset price cannot be negative, and that the logarithm of the asset price will be normally distributed, making the model analytically tractable.

  • Global floor

    A term usually associated with cliquet products. A cliquet product with global floor will provide a minimum return that is at least equal to the principal invested. Some cliquet products can have guaranteed principal redemption of more than 100%.

  • Growth product

    A term used to describe a type of structured product whose payouts are only made at maturity with no income stream during the product life. A growth product can be either principal guaranteed or non-guaranteed, although the former is common.

  • Guarantee level

    The amount of principal that is guaranteed to be repaid at the maturity of the product.

  • Guaranteed coupon

    Coupon payments that are guaranteed by the guarantor, and are paid during the life of the product irrespective of performance of the underlying.

  • Guaranteed fund

    A guaranteed fund comes with a promise by the guarantor to repay a portion, usually 100% of the principal at maturity. Guaranteed funds can also incorporate guaranteed coupons payable regardless of the underlying performance and/or non-guaranteed coupons linked to the performance of underlying assets, often a stock index or basket of stocks. "Guaranteed" does not mean the investment is risk-free. The guarantee on principal repayment usually holds only when the product is held to maturity, and is subject to credit risk of the guarantor. Investors who redeem early are usually repaid at net asset value and thus subject to market risk. A guaranteed fund is constructed by investing part of the proceeds in a zero-coupon bond or other fixed income instrument - which underwrites the guaranteed payment at maturity - and the rest of the money in an embedded call or put option on the underlying for additional returns. Hence, investors also run counterparty risk in relation to the option strategy. A guaranteed structure can also take the form of a guaranteed note or guaranteed bond. Generally, any structured product with a promise to return 100% of the principal invested at maturity can be considered a guaranteed product.

  • Guaranteed return on investment

    Any instrument (usually a structured note) which guarantees investors a minimum return on their investment. This can be achieved by combining a debt issue with a structure, such as a collar or cylinder, which locks gains into a range. This means that the investor gains protection from an adverse market move by limiting participation in any favourable move.

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