Glossary - V

Valuation point
The time at which the fund manager calculates the price of units in a unit trust or shares in an OEIC.

Value at risk
A measure of the maximum potential change in the value of a portfolio of financial instruments with a given probability over a specific time period.

Vanilla
Descriptive term that refers to a relatively simple financial instrument, with standard features and no special or unusual characteristics. For example, a vanilla option or warrant has fairly standard exercise terms and no special clauses.

Variance
The statistical measure of how widely a variable is dispersed around the mean.

Vega
The rate of change of an option price with respect to volatility of the underlying asset.

Volatility
A measure of the amount of movement in the price of a stock.

Volatility smile/skew
The asymmetrical distribution of implied volatility. Out of the money puts have higher implied volatilities than calls and vice versa, a fact explained in market terms by supply and demand.

When traders talk of trading the skew, they are generally talking about trying to predict the slope of the implied volatility curve plotted against strikes or deltas and choosing an option position that profits if their view is correct.

A negatively sloped implied volatility curve implies a negatively skewed probability distribution for the level of the underlying. The skew implied by the Black-Scholes model is zero.

Volume
The number of shares traded in a given period.

Voluntary offer
See optional offer

Voting right
The rights of shareholders to vote on matters proposed to the owners of the company.