Macaulay duration: See duration.
Mapping: The process whereby a bank’s trading positions are related to a set of risk "buckets", of fixed maturities.
Margin: Initial margin is collateral, placed by one party with a counterparty at the time of the deal, against the possibility that the market price will move against the first party, thereby leaving the counterparty with a credit risk. Variation margin is a payment or extra collateral transferred subsequently from one party to the other because the market price has moved. Variation margin payment is either in effect a settlement of profit/loss (for example, in the case of a futures contract) or the reduction of credit exposure (for example, in the case of a repo). In repos, variation margin refers to the fluctuation band or threshold within which the existing collateral’s value may vary before further cash or collateral needs to be transferred. In a loan, margin is the extra interest above a benchmark (e.g., a margin of 0.5 per cent over Libor) required by a lender to compensate for the credit risk of that particular borrower.
Margin call: A request following marking-to-market of a repo transaction for the initial margin to be reinstated or, where no initial margin has been taken, to restore the cash/securities ratio to parity. In the context of a futures exchange, call to make good trading losses and maintain initial margin levels.
Margin default rate: See probability of default.
Margin transfer: The payment of a margin call.
Market comparables: Technique for estimating the fair value of an instrument for which no price is quoted by comparing it with the quoted prices of similar instruments.
Market risk: Risks related to changes in prices of tradeable macroeconomics variables, such as exchange rate risks.
Market-maker: Market participant who is committed, explicitly or otherwise, to quoting two-way bid and offer prices at all times in a particular market.
Mark-to-market: The act of revaluing securities to current market values. Such revaluations should include both coupon accrued on the securities outstanding and interest accrued on the cash.
Matched book: Repo market making, or only trading to cover one’s own requirements. It carries no implications that the trader’s position is "matched" in terms of exposure, for example to short-term interest rates.
Maturity date: Date on which stock is redeemed. Also known as the expiry date.
Medium-Term Note: A debt capital market instrument originally used to
refer to a bond of maturity five to ten years, hence "medium" term, but
in theory with any maturity ranging from over 270 days to 30 years or
longer. MTNs are frequently issued as part of a continuous rolling debt
Minmax option: One of the strategies for reducing the cost of options by forgoing some of the potential for gain. The buyer of a currency option, for example, simultaneously sells an option on the same amount of currency but at a different strike price.
Modified duration: A measure of the proportional change in the price of a bond or other series of cash flows, relative to a change in yield (mathematically). See duration.
Modified following business day (MFBD): The convention that if a value date in the future falls on a non-business day, the value date will be moved to the next following business day, unless this moves the value date to the next month, in which case the value date is moved back to the last previous business day.
Momentum: The strength behind an upward or downward movement in price.
Money market: Short-term market (generally up to one year) for financial instruments. See capital market.
Money-market basis: An interest rate quoted on an act/360 basis is said to be on a money-market basis. See bond basis.
Monte Carlo simulation: Technique used to determine the likely value of a derivative or other contract by simulating the evolution of the underlying variables many times. The discounted average outcome of the simulation gives an approximation of the derivative’s value. Monte Carlo simulation can be used to estimate the value-at-risk (VAR) of a portfolio. Here, it generates a simulation of many correlated market movements for the markets to which the portfolio is exposed, and the positions in the portfolio are revalued repeatedly in accordance with the simulated scenarios. This gives a probability distribution of portfolio gains and losses from which the VAR can be determined.
Moosmüller: A method for calculating the yield of a bond.
Mortgage-backed security (MBS): Security guaranteed by a pool of mortgages.
Moving average convergence/divergence: The crossing of two exponentially smoothed moving averages that oscillate above and below an equilibrium line (MACD).
MTN: See Medium-Term Note
Multi-index option: Option which gives the holder the right to buy the asset that performs best out of a number of assets (usually two). The investor would typically buy a call allowing him or her to buy the equity.