The Heston model is an option pricing model that uses stochastic volatility.
This means that the model assumes that volatility is arbitrary, as opposed to the Black-Scholes model, which assumes volatility is constant.
The Heston model is a type of volatility smile model that is a graphical representation of multiple options with the same expiration dates that show increasing volatility as the options become more ITM or OTM.
A collar is an options strategy that involves buying a put option down and selling a put option up, which is used to protect against large losses but also cap large profits up.
A full ratchet is an anti-dilution provision that applies the lowest selling price as the option’s adjusted price or conversion rate to existing shareholders.
The interest rate collector uses option contracts to hedge interest rate risk to protect floating rate borrowers from rate hikes or lenders from falling rates in the event of a reverse collar.
A long straddle is an option strategy that involves buying both a long call and a long put on the same underlying asset with the same expiration date and strike price.
The option-adjusted spread (OAS) measures the difference in yield between a bond with an embedded option, such as an MBS or callable, and the yield on a Treasury bond.