FRM® glossary: D

12 terms beginning with D.

A B CDE F G H I K L M N O P Q R S T U V W Y Z

Debit valuation adjustment: The counterpart of CVA that reflects the firm's own default risk, which reduces the value of its liabilities. Recording a gain when its own credit worsens is controversial. Where it appears →
Default correlation: The tendency for borrowers to default together, usually because of shared economic factors. Higher correlation fattens the tail of portfolio losses. Where it appears →
Default fund: A pool of contributions from clearing members used to cover losses beyond a defaulter's margin. It mutualises extreme losses among members. Where it appears →
Delta: The change in an option's value for a small change in the price of the underlying. A delta hedge holds the opposite amount of the underlying. Where it appears →
Delta hedging: Offsetting an option's delta with a position in the underlying so that small price moves leave value unchanged. It must be rebalanced as delta changes. Where it appears →
Discount factor: The present value of one unit of currency due at a future date. It is derived from the spot rate for that maturity. Where it appears →
Distance to default: The number of standard deviations by which a firm's asset value sits above its default threshold. A smaller distance means a higher chance of default. Where it appears →
Diversification: Spreading exposure across assets whose returns are not perfectly correlated, so that total risk is lower than the sum of the parts. It removes idiosyncratic risk but not systematic risk. Where it appears →
Dodd-Frank: US legislation passed in 2010 that reformed financial regulation after the crisis. It includes central clearing of standard derivatives and the Volcker Rule. Where it appears →
Due diligence: A careful investigation of a counterparty, investment or provider before committing to it. It aims to find risks the headline information does not show. Where it appears →
Duration: A measure of a bond's price sensitivity to a change in yield, close to the weighted average time to its cash flows. Longer duration means a larger price change for a given yield move. Where it appears →
DV01: The change in the value of a position for a one basis point move in yield. It is a quick measure of interest rate exposure. Where it appears →

Learn these terms in context, with worked examples and questions.

GARP does not endorse, promote, review, or warrant the accuracy of the products or services offered by Charta Learning, nor does it endorse any pass rates claimed by Charta Learning. Further, GARP is not responsible for any fees or costs paid by the user to Charta Learning. FRM® and GARP® are registered trademarks owned by the Global Association of Risk Professionals, Inc. The questions, explanations and study notes are written for this product and are not GARP curriculum material.