An option which can only be exercised on expiration.

Properly a measure of the percentage change in the option premium for a 1% change in the asset price.
Sometimes loosely used as a synonym for delta (delta strictly measures the absolute change in the option premium for a one unit change in the underlying).
Because elasticity is usually significantly positive (a 1% change in the asset price can give rise to more than a 1% change in the option price) it is also sometimes used as a synonym for gearing.
This is most common in the warrant market, where it is calculated as delta times the price of the underlying divided by the option price.

Replication of the payoff of a portfolio long the underlying and long a put by continuous delta hedging.
It started as a theory of Hayne Leland and Mark Rubenstein on the back of the Black-Scholes model.
It was used to provide put protection for equity portfolios at a time when portfolio puts were not available.
The theory assumed that an option position could be replicated by continuously adjusting the fraction of funds invested
in the underlying equities with the remainder invested in a risk-free asset.
An initial hedge of treasury bills was created, its size depending on the level of protection required.
If the portfolio value fell, stocks had to be sold and the hedge position increased; the opposite had to be done if its value rose.
The theory worked as long as volatility was predictable and low and while markets did not gap dramatically.
Since it relied on a large amount of trading in the underlying, it also required liquid markets and low bid/offer spreads.
The price discontinuity experienced in the 1987 crash caused such strategies to lose money and credibility.
Also known as portfolio insurance.
See delta hedging, static replication, replication.

Call options are said to be delta positive because their value increases by the value of delta for a one unit rise in the price of the underlying.
Put options are said to be delta negative because their value decreases in value by delta for every one unit rise in the price of the underlying.
This relationship can be upset in barrier options.
An in-the-money knock-out call {put} will behave normally until, at a point near to the knock-out, any further increase {decrease}) in the underlying
will cause the value of the option to drop because the probability of its being knocked-out is more significant than the fact that it is moving further into the money.
At this point puts become delta positive and calls become delta negative.

An option portfolio delta-hedged such that it has no exposure to small moves in the price of the underlying.
In practice, since delta is altered by all but the very smallest changes in the price of the underlying,
by the volatility of that price, by the maturity of the option, by how close-to-the-money the option is and by interest rates,
the ratio of options to underlying must be constantly re-balanced to maintain delta neutrality.

Delta is the neutral hedge ratio derived from the Black-Scholes model the ratio of underlying asset to options necessary to create the risk-free portfolio that is at the heart of the Black-Scholes option pricing formula.
So the delta of a stock option indicates the number of shares needed to hedge a position in an option on that stock.
For example a portfolio long 100 stock call options with delta of 0.3 is delta hedged by a short position of 30 shares and the delta of an interest rate option indicates the notional amount of interest rate swap required to hedge it against small movements in interest rates.
Delta hedging is the application of this concept to the hedging of options portfolios.
A true delta hedge is the combination of underlying asset and money market instrument that creates the riskless hedge Black-Scholes says will exactly replicate the pay-off of the option to be hedged.
See delta, dynamic hedging, static replication, replication.

ome of this is necessary to express the basic operation of options contracts (such as ‘premium’ or ‘exercise price’)
and some of it is the result of the mathematical complexity of option pricing.
In particular, it is impossible for any potential user of options to avoid contact with the ‘Greeks’
a set of Greek letters used to denote variables used in option valuation.
However, although the underlying mathematics used in today’s option pricing models can be complicated
and well beyond the grasp of non-mathematicians, it is not necessary to understand advanced calculus
nor even the key variables such as delta and gamma respectively the first and second derivatives of the option premium
with respect to the price of the underlying.
For an end-user who needs to hedge an underlying cash position, or an investor who wishes to take a directional view on a market,
the concepts that the ‘Greeks’ represent and their impact on the price of any particular option are intuitive and easy to grasp.
This page explains all the terms an end-user of options (as opposed to a professional trader) is likely to encounter in putting together an options trade.
For easy reference, ‘Greeks’ are listed below with a brief explanation.

For interest rate options delta can be calculated with respect to the underlying bond price,
with respect to each underlying forward interest rate (as sometimes with cap deltas),
or with respect to a small parallel shift in the zero coupon yield curve so that delta is the change in the option price for a small change in all zero-coupon rates.
See delta hedging, dynamic hedging, static replication, replication.

The G20 group of industrialised and developing countries has agreed that regulation of the derivatives market needs to be strengthened to prevent a repeat of the financial crisis, when banks built up excessive levels of risk through trading in derivatives such as credit default swaps and collateralised debt obligations.

It agreed last year that derivatives trades should, as a rule, pass through central counterparty (CCP) clearers. Clearers act as middlemen and guarantors to market transactions. The G20 also agreed that investors should log their activities with trade repositories. Effectively, the trade in derivatives would be more transparent, so making clearer what risks are taken on, by whom.
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However, non-financial firms say that they will suffer from the attempts to tighten up regulation of banks and other financial services firms. Large industrial companies often have significant accumulations of money and they trade in derivatives as a way of managing their cash. But they say that they would struggle to meet the collateral requirements necessary to pass trades through CCP clearing.

As a result, they would be unable to use derivatives to hedge risks incurred through their normal business activities (for example, the risk of a currency fluctuation on an overseas sale) and so be left less well protected against insolvency.

In a paper published in April, the Commission recognised the problem and suggested that “in principle, non-financial institutions could be exempt from the clearing obligation”.
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Source

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Der Vorwurf vieler Kritiker lautet: Mit CDS-Kontrakten werden Unternehmen bewusst in die Pleite getrieben, weil die Derivatehändler mehr verdienen bei einer gelungenen Restrukturierung. Diese Behauptung wurde aufgestellt beim Autobauer General Motors (GM), ist aber heute noch populär. Goldman Sachs treibe die US-Truckinggesellschaft YRC Worldwide mit Kreditderivaten an den Rand der Pleite, warf James Hoffa, Präsident der Gewerkschaft International Brotherhood of Teamsters, dem Wall-Street-Haus vor.
Die ISDA hält mit Daten aus den Jahren 1984 bis 2009 dagegen. In den vergangenen 25 Jahren hätte es drei Spitzen an Pleitefällen gegeben. Dabei sei die Periode ab 2008 weniger ausgeprägt als die Hochpunkte 1990 und 2001, als es noch gar keinen liquiden CDS-Handel gab. Auch das Verhältnis zwischen Pleiten und Restrukturierungen lege eine negative Rolle der CDS-Kontrakte nicht nahe. Im Gegenteil: Die Zahl der Restrukturierungen sei sogar relativ gestiegen. “Das widerspricht der These, dass Restrukturierungen weniger wahrscheinlich geworden sind”
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“Wenn ein Investor eine Derivateposition aufbauen wollte, durch die er im Fall des Bankrotts verdienen würde, ginge er hohe Kosten und ein hohes Risiko ein”, hieß es in der ISDA-Analyse. Nicht nur stiegen die Preise der Kreditderivate. Sondern der Anleger wäre auch vertraglich dazu verpflichtet, an den Versicherungsanbieter eine Vorabprämie und Kuponzahlungen zu leisten.
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Die ISDA schießt mit ihren Ausführungen gegen die Reformpläne. Einmal sollen große Derivatehändler stärker beaufsichtigt werden. Zum anderen sollen standardisierte Kontrakte über elektronische Handelsplätze geschleust und durch zentrale Clearingsstellen abgewickelt werden. Die Wall Street, aber auch die Industrie ist davon nicht begeistert. Sie fürchten höhere Kosten und vor ungewollten Nachteilen.
Die geballte Lobbyarbeit scheint sich auszuzahlen. Vergangene Woche stellte das US-Repräsentantenhaus einen 1279-seitigen Gesetzesentwurf vor. Er sieht weitreichende Ausnahmen für die Industrie vor. Außerdem sollen die Clearinghäuser selbst entscheiden, welche Derivatekontrakte sie abwickeln und welche nicht.

Quelle FTD.de

Die Bemühungen der Banken, ihre außerbörslichen Wertpapiertransaktionen durch die Einschaltung einer zentralen Clearing-Partei sicherer zu gestalten, nehmen allem Anschein nach konkrete Formen an. So zeichnet sich nun endgültig der seit langem gewollte Einstieg eines Bankenkonsortiums bei dem auf das Settlement und Clearing von Wertpapiertransaktionen spezialisierte Unternehmen LCH.Clearnet Group ab.

Darauf deuten zumindest die jüngsten Aussagen des Clearnet-Entwicklungsvorstands Michael March hin: “Wir erwarten mit Sicherheit neue Anteilseigner und Anteilseignergruppen”, sagte er am Freitag auf einer Konferenz im schweizerischen Interlaken.

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Zu den interessierten Banken werden seit geraumer Zeit Deutsche Bank, J.P. Morgan Chase, UBS sowie BNP Paribas gezählt. Auch Societe Generale sowie Royal Bank of Scotland, HSBC Holdings und Citigroup werden als Konsortiumsmitglieder genannt. Der Plan mit dem Decknamen “Marigold” sei von den Banken positiv aufgenommen worden, schreibt die “FT” weiter.
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Webseiten: www.ft.com
www.lchclearnet.com