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Glossary

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Parisian Barrier Option:
A barrier option in which the barrier is triggered only if the underlying is beyond the barrier level for longer than a specified period.
See also: Parisian Barrier Option

Participating Index Linked:
Structured notes or CD's that pay a return that is calculated by multiplying any rise in the underlying index by a fixed percentage. This percentage is often called the participation or participation rate.

Participation:
Many structured notes provide a minimum fixed return plus an additional return that is calculated by multiplying any rise in the underlying index by a fixed percentage. This percentage is often called the participation or participation rate.

Path Dependent Option:
An option in which the payout is based on movements in the price of the underlying during the life of the option (as opposed to solely the price at expiry.)

Payout or Payoff:
This is a general term often used to describe the return that is provided by a structured note or an option. So, for example, one could say that the payout of a product is equal to 100% plus 80% of the rise in the underlying index.

Pick and Drop:
A structured note or CD that pays a return at maturity based on the sum of the Annual Performance for each year. Each year the Annual Performance will equal the performance of the best performing stock in the basket, measured since inception. The best performing stock is then removed from the basket and the remaining stocks will be observed to determine the best performer in the following years.

Pin Risk:
The phenomenon where a small move in the underlying can have a significant impact on the value of an at-the-money option shortly before expiration.

Principal Protected Product:
Any investment product which may pay a return based on the performance of an underlying asset and guarantees the return of principal at maturity. Such products are normally constructed by buying a deep discount bond (often a zero-coupon bond) and using the rest of the money to buy embedded call or put options to gain exposure to a second asset. In the case of Principal Protected Notes, the return of principal at maturity is subject to credit risk of the issuer.

Protected Tracker:
This is a type of structured note that provides a degree of capital protection together with participation in any rise in the underlying index.

Protection Level:
This is the level of the underlying index that, once breached, could result in a loss of capital.

Put Option:
This is a type of derivative that gives the holder the right, but not the obligation, to sell a set quantity of the underlying reference asset at a given price (the strike price) on or before a specified date (sometimes called the exercise date).

Put-Call Parity:
A relationship between a European-style put and call option which states that the sum of the value of an underlying asset plus a put option on that asset is equal to the sum of a call option with the same strike price and expiration on the same asset plus the cash equivalent of the present value of the strike price.
See also: Call Option

The terms and definitions contained in this Glossary were devleoped by Incapital LLC.  These definitions may differ from securities industry-related definitions for common terms.  The definitions contained herein should be utilized with respect to the terms used in the Structured Investment website.
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