Risk Management, Energy & Finance Glossary - D, Derivatives Risk Management, Energy & Finance Glossary - D, derivative instruments Return to Risk Limited home page from this Risk Glossary Derivatives page


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D:
DAX - a benchmark index tracking 30 blue chip stocks traded on the Frankfurt Stock Exchange.

Dashboard - in risk management, trading and financial applications, a consolidated report and/or graphical display highlighting key financial results and control metrics, such as current and trending level of VaR, current trading positions against established limits, and daily Mark-to-Market gains and losses.

Default Probability - the likelihood that a transaction counter party will default on an obligation.

Degree Day - a typical index variable in weather derivative transactions. Degree Days are a practical method for determining cumulative temperatures over the course of a season. Originally designed to evaluate energy demand and consumption, degree days are based on how far the average temperature departs from a human comfort level of 65 degrees Fahrenheit. See also Cooling Degree Day and Heating Degree Day.

Delta - sensitivity of an option's value to a change in the price of the underlying futures contract, also referred to as an option's futures-equivalent position.  Deltas are positive for calls, and negative for puts.  Deltas of deep in-the-money options are approximately equal to one; deltas of at-the-money options are 0.5; and deltas of deep out-of-the-money options approach zero.

Delta Hedging - a hedging strategy that uses futures contracts to hedge options and involves re-balancing an option portfolio periodically to maintain a specific delta (e.g. a delta of zero).

Delta Neutral - refers to a position or portfolio involving options that is designed to have an overall delta of zero.

Denatured - ethanol that has had a substance added to make it unfit for human consumption.

Derivative Instrument - an instrument which derives value from the value of some commodity or other financial instrument. Often referred to simply as Derivatives. Various authorities define derivative instruments in broad, inclusive terms or narrow, exclusive terms. For U.S. accounting rules in FAS 133, the FASB defines derivatives narrowly.

Designated Hedges - in U.S. accounting terminology under FAS 133, a derivative transaction that has been specified and contemporaneously documented as intended to hedge the financial risks of an asset or liability position, a firm commitment, or a foreign currency position or forecasted transaction.

Differential Swap - a Quanto swap.

DIG - an acronym for the FASB's Derivatives Implementation Group, which is a task force that was created by the FASB in 1998 concurrent with their issuance of FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to assist the FASB in providing guidance on questions that companies would face when they began implementing FAS 133.

Digital Option - a Binary Option.

Dispersion - the distribution pattern of measurements. The Standard Deviation is the most common measure of dispersion.

Distillate Oil - any distilled product of crude oil. A light petroleum product used for home heating and most machinery.

Dividend Yield - a stock's dividend expressed as a percentage of the share price.

Drexel Burnham Lambert - the now defunct investment bank that dominated the junk bond market of the 1980's.

Duration - a sophisticated measure of the average timing of cash flows from an asset or a liability or from an asset portfolio or a liability portfolio. Essentially, duration is a more accurate measure of maturity because it reflects the timing of cash flows from periodic interest and/or principal payments in addition to the cash flows represented by the funds transferred at maturity.

Duration is computed by summing the present values of all of the future cash flows after multiplying each by the time until receipt, and then dividing that product by the sum of the present value of the future cash flows without weighting them for the time of receipt. See also Convexity.

Duration-Convexity Matching - a technique of asset-liability matching.


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