Notional Value: What It Means in Derivatives and Why It Matters
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Key terms
- DerivativesFinancial contracts whose value is derived from an underlying asset, such as stocks, bonds, commodities, or currencies. Includes options, futures, and swaps.
- Loan-to-Value Ratio (LTV)The ratio of a loan amount to the appraised value of the property, expressed as a percentage. Lower LTV ratios typically result in better loan terms and may avoid PMI requirements.
- Book ValueThe net asset value of a company, calculated as total assets minus intangible assets and liabilities. Used to calculate the price-to-book (P/B) ratio for stock valuation.
- Value StockStock trading below its intrinsic value based on fundamentals. Often established companies with low P/E ratios and steady dividends. Contrasts with growth stocks.
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