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Term |
Description |
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Cross Effects |
In the context of PnL Explained, cross effects are the changes in value of a portfolio of trades from changing two things (e.g., prices and volatilities) simultaneously versus the cumulative effects of changing each item separately. |
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Impact of Cross Gamma |
Changes in the value of a trade from changing multiple prices simultaneously versus the cumulative effects of changing each price separately. |
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Impact of Cross Price/Volatility |
Changes in the value of a trade from changing prices volatilities simultaneously versus the cumulative effects of changing each item separately. For example, if a trade is valued at $100 on one day and valued at $110 if you just change the prices (to the next day's prices) and valued at $105 if you just change the volatilities then the cumulative effect would be $10 from price changes and $5 from volatility changes = $15 in total. However, because of price/volatility cross effects you might find that the new value is $116.50 and not $15. The $10 is 'Impact of Prices' The $5 is 'Impact of Volatility' The extra $1.50 is the Impact of Cross Price/Volatility. |
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Impact of Cross Vega Gamma |
Changes in the value of a trade from changing multiple volatilities simultaneously versus the cumulative effects of changing each volatility separately. |
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Impact of Delta |
PnL caused by first order effects of price changes (i.e., changes from one day to the next day). |
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Impact of Gamma |
PnL caused by second order effects of price changes. |
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Impact of Vega |
PnL caused by first order effects of volatility changes. |
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Impact of Vega Gamma |
PnL caused by second order effects of volatility changes. |
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PnL |
Short for Profit and/or Loss, the change in the value of a portfolio of trades from one day to the next. |
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PnL Attribution |
See PnL Explained |
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PnL Explained (P&L Explained) |
A report used by traders, especially derivatives (swaps and options) traders, that attributes or explains the daily fluctuation in the value of a portfolio of trades to the root causes of the changes. |
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Revaluation Method |
A method of calculating PnL Explained that uses formulas based on iteratively revaluing a deal using today's prices/volatilities/interest rates versus using prior day's values. |
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Sensitivities Method |
A method of calculating PnL Explained that uses formulas based on the greeks, sensitivities to price/volatility/time movements. |