Help, Search & Glossary

D

Delivery

The seller of the futures contract sends the appropriate cash instrument to the buyer during the futures expiration period or on the specified date(s). The buyer pays the futures price (subject to a price factor adjustment). Some futures contracts, such as stock index futures, are settled by a cash payment rather than by the physical delivery of the asset.

 

Delivery month (contract month)

The specified month to which trading a particular futures or options contract relates. On LIFFE these are March, June, September, December. Options may also be traded on a 1-2-3 month cycle e.g. January, February, March, in addition to the quarterly cycle.

 

Delta

The measure of change in the value of an option compared with a change in the price of the underlying.

 

Delta neutral hedging

An option is delta hedged if an offsetting position has been taken in the underlying asset in proportion to the option's delta, creating, at that moment in time, a position that is immune to small changes in market direction.

 

Derivative

A security whose value is dependent on, or derived from, the value of some underlying asset.

 

Discount factor

The rate used to derive net present value of a sum of money to be paid at a future date. See Present value.

 

Duration (modified)

A measure of the relative volatility of a bond; i.e. the price change of a bond for a given change in the interest rate. Duration is measured in units of time. It includes the effects of time until maturity, cash flows and the yield to maturity.