DAC-RAP: Delivery against collateral - receipt against payment. Same as DVP.

Daily range: The difference between the high and low points of a single trading day.

Day count: The convention used to calculate accrued interest on bonds and interest on cash. For UK gilts the convention changed to actual/actual from actual/365 on 1 November 1998. For cash the convention in sterling markets is actual/365.

DBV (delivery by value): A mechanism whereby a CREST/CGO member may borrow from or lend money to another CREST/CGO member against overnight gilt collateral. The CREST/CGO system automatically selects and delivers securities to a specified aggregate value on the basis of the previous night's CREST/CGO reference prices; equivalent securities are returned the following day. The DBV functionality allows the giver and taker of collateral to specify the classes of security to included within the DBV. The options are: all classes of security held within CREST/CGO, including strips and bulldogs; coupon bearing gilts and bulldogs; coupon bearing gilts and strips; only coupon bearing gilts.

DEaR: Daily earnings at risk.

Debenture: In the US market, an unsecured domestic bond, backed by the general credit quality of the issuer. Debentures are issued under a trust deed or indenture. In the UK market, a bond that is secured against the general assets of the issuer.

Debt capital: Capital raised by governments and corporate institutions that is raised through issuance of bonds.

Debt Management Office (DMO): An executive arm of the UK Treasury, responsible for cash management of the government's borrowing requirement. This includes responsibility for issuing government bonds (gilts), a function previously carried out by the Bank of England. The DMO began operations in April 1998.

Default correlation: The degree of covariance between the probabilities of default of a given set of counterparties. For example, in a set of counterparties with positive default correlation, a default by one counterparty suggests an increased probability of a default by another counterparty.

Default probability: See probability of default.

Default risk: See credit risk.

Default risk exposure: See credit risk exposure.

Default start options: Options purchased before their "lives" actually commence. A corporation might, for example, decide to pay for a deferred start option to lock into what it perceives as current advantageous pricing for an option that it knows it will need in the future.

Deferred strike option: Option where the strike price is established at a future date on the basis of the spot foreign exchange price prevailing at that future date.

Deliverable bond: One of the bonds which is eligible to be delivered by the seller of a bond futures contract at the contract's maturity, according to the specifications of that particular contract.

Delivery: Transfer of bonds (in settlements) from seller to buyer.

Delivery versus payment (DVP): The simultaneous exchange of securities and cash. The assured payment mechanism of the CGO achieves the same protection.

Delta: The change in an option's value relative to a change in the underlying's value.

Depreciation: A decrease in the market value of a currency in terms of other currencies. See appreciation, devaluation.

Derivative: Strictly, any financial instrument whose value is derived from another, such as a forward foreign exchange rate, a futures contract, an option, an interest rate swap, and so on. Forward deals to be settled in full are not always called derivatives, however.

Devaluation: An official one-off decrease in the value of a currency in terms of other currencies. See depreciation, revaluation.

Digital option: Unlike simple European and American options, a digital option has fixed payouts and, rather like binary digital circuits, which are either on or off, pays out either this amount or nothing. Digital options can be added together to create assets that exactly mirror index price movements anticipated by investors. See one touch all-or-nothing.

Direct: An exchange rate quotation against the US dollar in which the dollar is the variable currency and the other currency is the base currency.

Dirty price: The price of a bond including accrued interest. Also known as the "all-in" price.

Discount: The amount by which a bond is trading below par. In FX markets, amount by which a currency is cheaper, in terms of another currency, for future delivery than for spot.

Discount house: In the UK money market, originally securities houses that dealt directly with the Bank of England in T-bills and bank bills, or discount instruments, hence the name. Most discount houses were taken over by banking groups and the term is not now generally used, as the BoE now also deals directly with clearing banks and securities houses. Following closure of Gerard & King in 2000, the only remaining discount house is Cater Allen (part of Abbey National group).

Discount rate: The method of market quotation for certain securities (US and UK treasury bills, for example), expressing the return on the security as a proportion of the face value of the security received at maturity - as opposed to a yield which expresses the yield as a proportion of the original investment.

Discount swap: Swap in which the fixed-rate payments are less than the internal rate of return on the swap, the difference being made up at maturity by a balloon payment.

Dividend discount model: Theoretical estimate of market value that computes the economic or the net present value of future cash flows due to an equity investor.

DMO: The UK Debt Management Office.

DMR: The Debt Management Report, published annually by HM Treasury.

Down-and-in option: Barrier option where the holder's ability to exercise is activated if the value of the underlying drops below a specified level. See also up-and-in option.

Down-and-out option: Barrier option where the holder's ability to exercise expires if the value of the underlying drops below a specified level.

Dual currency option: Option allowing the holder to buy either of two currencies.

Dual currency swap: Currency swap where both the interest rates are fixed rates.

Dual strike option: Interest rate option, usually a cap or a floor, with one floor or ceiling rate for part of the option's life and another for the rest.

Duration: A measure of the weighted average life of a bond or other series of cash flows, using the present values of the cash flows as the weights. See modified duration.

Duration gap: Measurement of the interest rate exposure of an institution.

Duration weighting: The process of using the modified duration value for bonds to calculate the exact nominal holdings in a spread position. This is necessary because £1 million nominal of a two-year bond is not equivalent to £1 million of say, a five-year bond. The modified duration value of the five-year bond will be higher, indicating that its "basis point value" (bpv) will be greater, and that therefore £1 million worth of this bond represents greater sensitivity to a move in interest rates (risk). As another example consider a fund manager holding £10 million of five-year bonds. The fund manager wishes to switch into a holding of two-year bonds with the same overall risk position. The basis point values of the bonds are 0.041583 and 0.022898 respectively. The ratio of the bpvs are 0.041583/0.022898 = 1.816. The fund manager therefore needs to switch into £10m * 1.816 = £18.160 million of the two-year bond.

DVP: Delivery versus payment, in which the settlement mechanics of a sale or loan of securities against cash is such that the securities and cash are exchanged against each other simultaneously through the same clearing mechanism and neither can be transferred unless the other is.

Early exercise: The exercise or assignment of an option prior to expiration.

ECU: The European Currency Unit, a basket composed of European Union currencies, now defunct following introduction of euro currency.

Effective rate: An effective interest rate is the rate which, earned as simple interest over one year, gives the same return as interest paid more frequently than once per year and then compounded. See nominal rate.

Efficient frontier method: Technique used by fund managers to allocate assets.

Efficient market: Attributed to Eugene Fama (1970), a market in which asset prices reflect all price-relevant information.

Embedded option: Interest-rate sensitive option within a debt instrument that affects its redemption. Such instruments include mortgage-backed securities and callable bonds.

End-end: A money market deal commencing on the last working day of a month and lasting for a whole number of months, maturing on the last working day of the correlation.

Epsilon: The same as vega.

Equity: The residual interest in the net assets of an entity that remains after deducting the liabilities.

Equity options: Options on shares of an individual common stock.

Equity warrant: Warrant, usually attached to a bond, entitling the holder purchase share(s).

Equity-linked swap: Swap where one of the cash flows is based on an equity instrument or index, when it is known as an equity index swap.

Equivalent life: The weighted average life of the principal of a bond where there are partial redemptions, using the present values of the partial redemptions as the weights.

ERA: See exchange rate agreement.

Eta: The same as vega.

Euribor: The reference rate for the euro currency, fixed in Brussels.

Euro: The name for the domestic currency of the European Monetary Union. Not to be confused with Eurocurrency.

Euroclear: An international clearing system for Euro-currency and international securities. Euroclear is based in Brussels and managed by Morgan Guaranty Trust Company.

Eurocurrency: A Eurocurrency is a currency owned by a non-resident of the country in which the currency is legal tender. Not to be confused with euro.

Euro-issuance: The issue of gilts (or other securities) denominated in euro.

Euromarket: The international market in which Eurocurrencies are traded.

European: A European option is one that may be exercised only at expiry. See American.

Exchange controls: Regulations restricting the free convertibility of a currency into other currencies.

Exchange rate agreement: A contract for differences based on the movement in a forward-forward foreign exchange swap price. Does not take account of the effect of spot rate changes as an FXA does. See SAFE.

Exchange-traded: Futures contracts are traded on a futures exchange, as opposed to forward deals which are OTC. Option contracts are similarly exchange traded rather than OTC.

Ex-dividend (xd) date: A bond's record date for the payment of coupons. The coupon payment will be made to the person who is the registered holder of the stock on the xd date. For UK gilts this is seven working days before the coupon date.

Exercise: To exercise an option (by the holder) is to require the other party (the writer) to fulfil the underlying transaction. Exercise price is the same as strike price.

Exotic option: Usually referred to simply as an "exotic", a non-standard or non-vanilla option that differs from conventional options, in one or more ways. Examples included path-dependent options such as Asian or lookback options.

Expected (credit) loss: Estimate of the amount a derivatives counterparty is likely to lose as a result of default from a derivatives contract, with a given level of probability. The expected loss of any derivative position can be derived by combining the distributions of credit exposures, rate of recovery and probabilities of default.

Expected default rate: Estimate of the most likely rate of default of a counterparty expressed as a level of probability.

Expected rate of recovery: See rate of recovery.

Expiry: An option's expiry is the time after which it can no longer be exercised.

Exposure: Risk to market movements.

Exposure profile: The path of worst-case or expected exposures over time. Different instruments reveal quite differently shaped exposures profiles due to the interaction of the diffusion and amortisation effects.

Extinguishable option: Option in which the holder's right to exercise disappears if the value of the underlying passes a specified level. See also barrier option.

Extrapolation: The process of estimating a price or rate for a particular value date, from other known prices, when the value date required lies outside the period covered by the known prices. See interpolation.