PEP - Glossary

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PnL Explained	CTRM Software	Statistics

Glossary

Column Name

Description

Term

The item being defined or described

Application

The context for which the term may be used. Showing the context means we can have just one consolidated glossary instead of multiple glossaries for each area of study. This is convenient as some terms are in multiple fields of study.

Possible values for ‘Application’ are:

#	Application	Description
1	MTM	Meaning that this term described in this glossary is used when talking about or calculating the MTM, meaning the Mark-to-Market or the value of a trade.
2	greeks	Meaning that this term described when talking about the greeks. The word greeks is often shown as lower case because it is referring to the Greek letters used in the field of risk management and not the Greek people. The greeks are often uses for analyzing options.
3	PnL	Meaning that this term described in this glossary is used when talking about or calculating the PnL, meaning the Profit and/Loss, meaning the change in value (MTM) from one day to the next.
4	PnL Explained	Meaning that this term described in this glossary is used when talking about or calculating PnL Explained

Description

The definition or description of the term, i.e., the word.

Term	Application	Description
Cross Effects	greeks, PnL Explained	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.
Impact of Cross Gamma	PnL Explained	Changes in the value of a trade from changing multiple prices simultaneously versus the cumulative effects of changing each price separately.
Impact of Cross Price/Volatility	PnL Explained	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.
Impact of Cross Vega Gamma	PnL Explained	Changes in the value of a trade from changing multiple volatilities simultaneously versus the cumulative effects of changing each volatility separately.
Impact of Delta	PnL Explained	PnL caused by first order effects of price changes (i.e., changes from one day to the next day).
Impact of Gamma	PnL Explained	PnL caused by second order effects of price changes.
Impact of Vega	PnL Explained	PnL caused by first order effects of volatility changes.
Impact of Vega Gamma	PnL Explained	PnL caused by second order effects of volatility changes.
MTD PnL	PnL	MTD stands for ‘Month-to-Date’. It is the PnL from the last day of the prior month to the current day. When PnL is used by itself it is referring to a day over day change. Therefore, on the first day of the month, MTD PnL always equals PnL. There is also LTD (Life-to-Date) and YTD (Year-to-Date) PnL.
MTM	MTM, PnL	MTM is short for Mark-to-Market and in the context of trading is means the value of something, i.e., a trade. This concept is also called ‘Present Value’. Click here for more information about MTM
PnL	PnL, PnL Explained	Short for Profit and/or Loss, the change in the value of a portfolio of trades from one day to the next. Click here for more information about PnL
PnL Attribution	PnL Explained	See PnL Explained
PnL Explained (P&L Explained)	PnL 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.
Present Value	MTM	See MTM
Revaluation Method	PnL Explained	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.
Sensitivities Method	PnL Explained	A method of calculating PnL Explained that uses formulas based on the greeks, sensitivities to price/volatility/time movements.

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