Glossary

The value of volatility embedded in anoption price. All things being equal,higher implied volatility will lead to  higher vanilla option prices and vice versa. The effect of changes in volatility on an option’s price is known as vega. If an option’s premium is known, its implied volatility can be derived by inputting all the known factors into an option pricing model (the current price of the underlying, interest rates, the time to maturity and the strike price). The model will then calculate the volatility assumed in the option price, which will be the market’s best estimate of the future volatility of the underlying.

A composite of values designed to measure evolution in a market or an economy, such as the Paris Stock Exchange, thanks to a representative sample of values (in other words, synthetise in one figure the performances of a sample of disparate companies). It also represents an effective tool of comparison to evaluate the performances of its own portfolio. Each Stock Exchange has its own indexes. CAC 40 is the reference index of the Paris Stock Exchange. The most important French companies are listed: France Telecom, Total, Sanofi-Aventis. An index can contain a more or less large set of values. In order to complete the CAC 40 index, other indexes such as SBF 120 and SBF 250, have been created. The more the number is important, the more the index is representative of the performance in the market as a whole. Thus the SBF 120 is larger and more diversified than the CAC 40. Copyright © La Vie Financière