premium

1. The payment made by an insured to an insurance company that has accepted a transfer of a risk. The amount of the premium is a function of the likelihood and size of a potential loss. See also direct premium 2.
2. The price at which an option trades. The amount of the premium is affected by various factors, including the time to expiration, interest rates, strike price, and the price and price volatility of the underlying asset. Also called option premium.
3. The amount by which a bond sells above its face value. Also called bond premium.
4. The excess by which a warrant trades above its theoretical value.
5. The amount by which a convertible bond sells above the price at which the same bond without the convertible feature would sell.
6. A free or reduced-price item offered as an incentive to undertake some action. For example, a savings institution offers frequent-flyer points to customers who invest $10,000 in a one-year certificate of deposit. See also direct premium 1.