Par Swap Rate (SFR)
The fixed rate that makes an interest rate swap have zero NPV at inception.
SFR = (1 − DF_n) / Σ(DF_i × δ_i), where DF_i = e^(−r_i×T_i) are discount factors from the SOFR zero curve and δ_i are day count fractions (ACT/360 standard). The numerator (1 − DF_n) represents the net present value of the 'floating leg' (which resets to par). The denominator Σ(DF_i×δ_i) is the annuity factor. The par swap rate equals the fixed coupon that makes the swap's fixed leg PV equal to the floating leg PV at inception.
Interest Rate Swap (IRS)
An agreement to exchange fixed-rate cash flows for floating-rate cash flows on a notional principal.
SOFR (Secured Overnight Financing Rate)
The US dollar risk-free rate based on overnight Treasury repo transactions, replacing LIBOR since 2023.
Black-Scholes-Merton Model (BSM)
The foundational option pricing formula that gives the fair value of a European call or put as a function of spot, strike, rate, volatility, and time.
Delta (Δ)
The sensitivity of an option's price to a $1 change in the underlying spot price.
Gamma (Γ)
The rate of change of delta with respect to the spot price — the curvature of the option's value.
Theta (Θ)
The rate at which an option loses value as time passes — time decay per calendar day.