Quant finance terms in plain language.

Use this glossary alongside the interactive lessons. Definitions are educational summaries, not legal or regulatory interpretations.

DV01

The local change in value for a one-basis-point interest-rate move. The app uses a signed upward-move P&L convention.

CS01

The local change in value for a one-basis-point credit-spread move, holding risk-free rates fixed.

Gamma

How delta changes as the underlying moves: the local bend in the value curve.

Delta

A measure of how a position’s value changes when an underlying market factor moves a little.

Vega

A measure of how an option’s value changes when implied volatility changes.

Curvature

The nonlinear part of a large shock after the linear delta effect is removed.

Expected shortfall (ES)

The average loss in the tail beyond a chosen confidence threshold.

Value at Risk (VaR)

A loss threshold at a stated confidence level and horizon.

RRAO

The residual risk add-on in FRTB SA for designated exotic underlyings and other residual risks.

DRC

Default risk charge for losses caused by an issuer defaulting, after permitted netting and weighting.

NMRF

A non-modellable risk factor that receives stress-scenario treatment in FRTB IMA.

RFET

The risk factor eligibility test for determining whether price evidence supports modellability.

PLAT

Profit and loss attribution testing comparing hypothetical and risk-theoretical P&L.

Liquidity horizon

The regulatory time horizon used to reflect how long a risk may take to hedge or exit.

Martingale

A process whose conditional expected future value equals its current value, given available information.

XVA: the economics behind a trade

Explore the interactive XVA learning path →

CVA / DVA

Counterparty-credit loss adjustment and own-credit benefit. These are values, distinct from CVA risk capital.

FVA · FCA / FBA

Funding valuation adjustment: borrowing costs less benefits from reusable cash under a specified funding policy.

ColVA

Collateral remuneration effects relative to the chosen clean valuation benchmark.

MVA

Funding cost of posted initial margin; the principal itself is not the cost.

KVA

Cost of remunerating capital over time, distinct from the capital balance.

CCVA

Central clearing cost decomposition, including margin, default-fund and capital economics.

TVA

May mean tax valuation adjustment or total valuation adjustment, depending on the source.

LVA / AVA

LVA is context-dependent liquidity terminology. AVA is a prudential additional valuation adjustment, not another automatic funding charge.

IRRBB · Banking-book risk

Explore the IRRBB Lab →

EVE / ΔEVE

Economic value of equity: the present value of asset cash flows less liability cash flows under the measurement convention; ΔEVE is its change after a shock.

NII / ΔNII

Interest income less interest expense over a defined horizon; ΔNII compares shocked earnings with a consistent baseline.

Deposit beta

The share of a market-rate change passed through to a customer deposit rate.

Non-maturity deposit (NMD)

A deposit without a fixed contractual maturity, requiring separate assumptions about balance stability and repricing.

CPR

Conditional prepayment rate, an annual rate of early principal repayment on an outstanding loan pool.

Basis risk

Risk that the reference rates on assets, liabilities or hedges move differently.

CSRBB

Credit spread risk in the banking book, a related market-spread exposure distinct from risk-free rate changes.

Curves and liquidity

Discount factor

The present value of one unit paid at a future date under the chosen valuation convention.

Bootstrapping

Solving successive discount factors from instruments with observable par quotes.

Forward rate

A rate implied for a future interval by today’s curve; it need not predict the realised rate.

LCR

Eligible high-quality liquid assets divided by stressed net 30-day cash outflows.

NSFR

Available stable funding divided by required stable funding, using prescribed categories and weights.

Encumbrance

An asset’s commitment to an existing obligation, limiting its availability for other funding uses.

Survival horizon

The time before available liquidity becomes insufficient under a specified cash-flow stress.

Credit risk and impairment

PD / LGD / EAD

Probability of default, loss severity given default, and exposure at the default event; definitions and horizons depend on purpose.

SICR

Significant increase in credit risk since origination, assessed using changes in default risk and relevant qualitative and forward-looking information.

12-month ECL

Lifetime shortfalls from defaults possible in the next twelve months, rather than only the shortfalls occurring in those twelve months.

POCI

Purchased or originated credit-impaired assets, using a credit-adjusted yield and subsequent cumulative changes in lifetime ECL.

Data leakage

Using information in model development or evaluation that would not be available for the intended prediction.

Calibration / discrimination

Accuracy of probability levels versus ability to rank risk; both need validation.

WoE / IV / PSI

Weight of evidence, information value and population stability index: diagnostics whose meaning depends on definitions, bins and data.

Explore the Credit Risk & Loss Lab →

SIMM · Initial margin

SIMM is ISDA’s sensitivity-based model for non-cleared derivatives initial margin. Weighted sensitivity (WS) combines net risk, a risk weight and applicable concentration. K is a bucket risk magnitude; S is its capped directional sum. CRIF standardises exchanged risk data.

Explore the SIMM learning path →

Treasury risk

ALCO is the Asset and Liability Committee. FTP allocates internal funding costs and benefits. Deposit beta measures rate pass-through. Rollover risk is the risk of not replacing maturing funding. Encumbrance restricts an asset’s availability. Counterbalancing capacity is the liquidity that credible actions can generate under the relevant constraints.

Explore the Treasury Risk Lab →