A Greek letter used in the financial industry to represent the sensitivity of an option’s price to changes in the price volatility of the underlying.
Key rate duration
A measure of duration that calculates effective or empirical duration by changing the market rate for one specific maturity point on the yield curve while holding all other variables constant. May be done as part of a series of calculations that separately and sequentially vary the yields for two or more maturity points on the yield curve. Sets of partial durations for multiple points on the same yield curve will sum to a value that is usually close to the overall effective duration. Also known as reshaping duration. Key rate duration is the most common type of partial duration and those terms are often used as synonyms. See effective duration, empirical duration and partial duration.
Kitchen sink bonds
(1) An informal name for some re-REMICs created when tranches of existing CMO REMICs are combined and used to collateralize new securities. A re-REMIC that combines highly volatile tranches is called a kitchen sink bond. Kitchen sink bonds are very high-risk securities.
(2) An old term from CDOs.
The points on a yield curve for which there are observable prices for traded instruments. Rates for all maturity points between the knot points are "filled in" using any one of a variety of techniques for yield curve smoothing. See smoothing.
See fat tail.