AIMA

Measures the probability that investment losses will result from factors other than credit risk, market risk or liquidity risk, such as employee fraud or misconduct, errors in cashflow models, incorrect or incomplete documentation of trades or man-made disasters.

An option is the right (but not the obligation) to trade a particular amount of a specific good on or before a set day at an agreed (“strike” or “exercise”) price. See Call/Call option.  The right to buy is known as a “call” option and the right to sell a “put” option. Since options give one party the opportunity to benefit when it is advantageous to them, but gives them no obligation to trade when it is not, they must pay for it. One party buys the option and pays the option “premium” to the option “writer” who must honour the contract.

See Option writer.

The person who originates an option contract by promising to perform a certain obligation in return for the price or premium of the option. Also known as Option grantor.

Term applied to the initial deposit of margin money each clearing member firm is required to make according to clearing organization rules based upon positions carried, determined separately for customer and proprietary positions; similar in concept to the initial margin or security deposit required of customers by exchange rules. See Initial Margin.