CMOs Collateralized Mortgage Obligations. The stripped cash flows are then reallocated to multiple classes with different maturities and payment priorities. Collars A combination of Cap and Floor agreements that effectively places both an upper and lower limit on price or rate. Contango Contract month pricing situation in which future prices get progressively higher as contract dates get progressively longer, creating negative spreads as contracts go further out. The increases reflect carrying costs, including storage, financing, and insurance.
Convexity Describes the rate of change in duration as interest rates change.
CPR Conditional Prepayment Rate or Constant Prepayment Rate. Similar to SMM, except that it expresses the prepayment percentage as an annually compounded rate. Default A mortgage loan in default is one that no longer pays principal and interest, and then remains delinquent until liquidated. Delta The amount by which a derivative security will change in price, given a change in price in the underlying instrument. It is the slope of the curve that relates the derivative's price to the underlying instrument's price.