Glossary of Derivatives Terms – M

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Margin Requirement (for options)
The amount an uncovered (naked) option writer is required to deposit and maintain to cover a position. The margin requirement is calculated in real-time (if the clearing house has any sense at all) but for digital options has a built in cap.

An accounting process by which the price of assets held in an account are valued in real-time to reflect the net liquidating position of the account. The result of this process is that the equity in an account is updated in real-time (as necessary) to properly reflect current asset prices.

An exchange member whose function is to make bids and offers for financial assets. Several market-makers are normally assigned to a particular asset.

Market Order
An order to buy or sell at the current market bid or offer.

A mathematical formula designed to price a digital option as a function of certain variables – generally asset price, strike price, volatility, time to expiration, dividends to be paid, and the current risk-free interest rate. The Black-Scholes model is one of the more widely used models.









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