 Financial Terms Autoregressive

# Definition of Autoregressive ## Autoregressive

Using past data to predict future data.

# Related Terms:

## Extrapolative statistical models

Models that apply a formula to historical data and project results for a
future period. Such models include the simple linear trend model, the simple exponential model, and the
simple autoregressive model.

## Arbitrage-free option-pricing models

Yield curve option-pricing models.

## Deterministic models

Liability-matching models that assume that the liability payments and the asset cash
flows are known with certainty. Related: Compare stochastic models

## percentage of sales models

Planning model in which sales forecasts are the driving variables and most other variables are
proportional to sales.

## statistical process control (SPC)

the use of control techniques that are based on the theory that a process has natural variations in it over time, but uncommon variations
are typically the points at which the process produces "errors", which can be defective goods or poor service

## Stochastic models

Liability-matching models that assume that the liability payments and the asset cash flows
are uncertain. Related: Deterministic models.

## Yield curve option-pricing models

models that can incorporate different volatility assumptions along the
yield curve, such as the Black-Derman-Toy model. Also called arbitrage-free option-pricing models. ## Accounting period

The period of time for which financial statements are produced – see also financial year.

## Allocation base A measure of activity or volume such as labour

hours, machine hours or volume of production
used to apportion overheads to products and
services.

## Annualized holding period return

The annual rate of return that when compounded t times, would have
given the same t-period holding return as actually occurred from period 1 to period t.

## Annuity Period

The time between each payment under an annuity.

## Arbitrage-free option-pricing models

Yield curve option-pricing models.

## Asset pricing model

A model for determining the required rate of return on an asset.

## Asset pricing model

A model, Such as the Capital Asset Pricing model (CAPM), that determines the required
rate of return on a particular asset.

## Average Amortization Period

The average useful life of a company's collective amortizable asset base.

## Average Collection Period

Average number of days necessary to receive cash for the sale of
a company's products. It is calculated by dividing the value of the
accounts receivable by the average daily sales for the period. ## Average collection period, or days' receivables

The ratio of accounts receivables to sales, or the total
amount of credit extended per dollar of daily sales (average AR/sales * 365).

## Binomial model

A method of pricing options or other equity derivatives in
which the probability over time of each possible price follows a binomial
distribution. The basic assumption is that prices can move to only two values
(one higher and one lower) over any short time period.

## Binomial option pricing model

An option pricing model in which the underlying asset can take on only two
possible, discrete values in the next time period for each value that it can take on in the preceding time period.

## Black-Scholes model

The first complete mathematical model for pricing
options, developed by Fischer Black and Myron Scholes. It examines market
price, strike price, volatility, time to expiration, and interest rates. It is limited
to only certain kinds of options.

## Black-Scholes option-pricing model

A model for pricing call options based on arbitrage arguments that uses
the stock price, the exercise price, the risk-free interest rate, the time to expiration, and the standard deviation
of the stock return.

## cafeteria plan a “menu” of fringe benefit options that include

cash or nontaxable benefits

## Capital asset pricing model (CAPM)

An economic theory that describes the relationship between risk and
expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk
that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification.
The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk-free security

## Capital Asset Pricing Model (CAPM)

A model for estimating equilibrium rates of return and values of
assets in financial markets; uses beta as a measure of asset risk
relative to market risk

## capital asset pricing model (CAPM)

Theory of the relationship between risk and return which states that the expected risk
premium on any security equals its beta times the market risk premium.

## Compounding period

The length of the time period (for example, a quarter in the case of quarterly
compounding) that elapses before interest compounds.

## compounding period

the time between each interest computation ## constant-growth dividend discount model

Version of the dividend discount model in which dividends grow at a constant rate.

## Constant-growth model

Also called the Gordon-Shapiro model, an application of the dividend discount
model which assumes (1) a fixed growth rate for future dividends and (2) a single discount rate.

## Conventional project

A project with a negative initial cash flow (cash outflow), which is expected to be
followed by one or more future positive cash flows (cash inflows).

## Credit period

The length of time for which the customer is granted credit.

## Critical Growth Periods

Times in a company's history when growth is essential and without which survival of the business might be in jeopardy.

## Currency future

A financial future contract for the delivery of a specified foreign currency.

## data

bits of knowledge or facts that have not been summarized
or categorized in a manner useful to a decision maker

## data mining

a form of analysis in which statistical techniques

## Deferred futures

The most distant months of a futures contract. A bond that sells at a discount and does not
pay interest for an initial period, typically from three to seven years. Compare step-up bond and payment-inkind
bond.

## Deterministic models

Liability-matching models that assume that the liability payments and the asset cash
flows are known with certainty. Related: Compare stochastic models

## Detrend

To remove the general drift, tendency or bent of a set of statistical data as related to time.

## Discount period

The period during which a customer can deduct the discount from the net amount of the bill
when making payment.

## Discounted dividend model (DDM)

A formula to estimate the intrinsic value of a firm by figuring the
present value of all expected future dividends.

## Discounted payback period rule

An investment decision rule in which the cash flows are discounted at an
interest rate and the payback rule is applied on these discounted cash flows.

## dividend discount model

Computation of today’s stock price which states that share value equals the present value of all expected future dividends.

## Dividend discount model (DDM)

A model for valuing the common stock of a company, based on the
present value of the expected cash flows.

## Dividend growth model

A model wherein dividends are assumed to be at a constant rate in perpetuity.

## economic components model

Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
This model consists of four components: the measure of the economic impact of the delay-to-sale, monopsony power to buyers, and incremental transactions costs to both buyers and sellers.

## Electronic data interchange (EDI)

The exchange of information electronically, directly from one firm's
computer to another firm's computer, in a structured format.

## electronic data interchange (EDI)

the computer-to-computer transfer of information in virtual real time Using standardized formats developed by the American National Standards Institute

## Evaluation period

The time interval over which a money manager's performance is evaluated.

## Expected future cash flows

projected future cash flows associated with an asset of decision.

## Expected future return

The return that is expected to be earned on an asset in the future. Also called the
expected return.

## Extended Amortization Period

An amortization period that continues beyond a long-lived asset's economic useful life.

## Extended Amortization Periods

Amortizing capitalized expenditures over estimated useful lives that are unduly optimistic.

## Factor model

A way of decomposing the factors that influence a security's rate of return into common and
firm-specific influences.

## Financial future

A contract entered into now that provides for the delivery of a specified asset in exchange
for the selling price at some specified future date.

## Financial Trend Analysis

Process of analyzing financial statements of a company for any continuing relationship.

## Flat benefit formula

Method used to determine a participant's benefits in a defined benefit plan by
multiplying months of service by a flat monthly benefit.

## Formula basis

A method of selling a new issue of common stock in which the SEC declares the registration
statement effective on the basis of a price formula rather than on a specific range.

## Full Credit Period

The period of trade credit given by a supplier to its customer.

## Future

A term used to designate all contracts covering the sale of financial instruments or physical
commodities for future delivery on a commodity exchange.

## Future investment opportunities

The options to identify additional, more valuable investment opportunities
in the future that result from a current opportunity or operation.

## Future-Oriented Financial Information

Information about prospective results of operations, financial position and/or changes in financial position, based on assumptions about future economic conditions and courses of action. future-oriented financial information is presented as either a forecast or a projection.

## Future value

The amount of cash at a specified date in the future that is equivalent in value to a specified
sum today.

## Future Value

The amount a given payment, or series of payments, will be worth
at the end of a specified time period, if invested at a given rate

## future value

the amount to which one or more sums of
money invested at a specified interest rate will grow over
a specified number of time periods

## Future value

The value that a sum of money (the present value) earning
compound interest will have in the future.

## future value

Amount to which an investment will grow after earning interest.

## Future Value

The amount to which a payment or series of payments will grow by a given future date when compounded by a given interest rate. FVIF future value interest factor.

## Futures

A term used to designate all contracts covering the sale of financial instruments or physical
commodities for future delivery on a commodity exchange.

## Futures commission merchant

A firm or person engaged in soliciting or accepting and handling orders for
the purchase or sale of futures contracts, subject to the rules of a futures exchange and, who, in connection
with Such solicitation or acceptance of orders, accepts any money or securities to margin any resulting trades
or contracts. The FCM must be licensed by the CFTC. Related: commission house , omnibus account

## Futures contract

Agreement to buy or sell a set number of shares of a specific stock in a designated future
month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures
market. A futures contract differs from an option because an option is the right to buy or sell, whereas a
futures contract is the promise to actually make a transaction. A future is part of a class of securities called
derivatives, so named because Such securities derive their value from the worth of an underlying investment.

## futures contract

Exchange-traded promise to buy or sell an asset in the future at a prespecified price.

## Futures Contract

A contract in which the seller agrees to provide something to a buyer at a specified future date at an agreed price.

## Futures contract multiple

A constant, set by an exchange, which when multiplied by the futures price gives
the dollar value of a stock index futures contract.

## Futures market

A market in which contracts for future delivery of a commodity or a security are bought or sold.

## Futures option

An option on a futures contract. Related: options on physicals.

## Futures price

The price at which the parties to a futures contract agree to transact on the settlement date.

## Garmen-Kohlhagen option pricing model

A widely used model for pricing foreign currency options.

## Gordon model

present value of a perpetuity with growth.
The end-ofyear Gordon model formula is: 1/(r - g)
and the midyear formula is: SQRT(1 + r)/(r - g).

## Grace Period

A specific period of time after a premium payment is due during which the policy owner may make a payment, and during which, the protection of the policy continues. The grace period usually ends in 30 days.

## Grace Period

Length of time during which repayments of loan principal are excused. Usually occurs at the start of the loan period.

## historical cost

a cost incurred in the past; the recorded purchase
price of an asset; a sunk cost

## Historical cost

The original cost required to perform a service or purchase an asset.

## Historical exchange rate

An accounting term that refers to the exchange rate in effect when an asset or
liability was acquired.

## Holding period

Length of time that an individual holds a security.

## Holding period return

The rate of return over a given period.

## Housing Start

A new house on which construction has just begun.

## Independent project

A project whose acceptance or rejection is independent of the acceptance or rejection of
other projects.

## independent project

an investment project that has no specific
bearing on any other investment project

## Independent Projects

A situation where an increase (or decrease) in the benefits of one
project has no effect on the benefits of another project. Also, a
situation where the acceptance of one project does not preclude
the acceptance of another project.

## Index model

A model of stock returns Using a market index Such as the S&P 500 to represent common or
systematic risk factors.

a model that involves
(1) few physical assets,
(2) little management hierarchy, and
(3) a direct pipeline to customers

## Linear programming

Technique for finding the maximum value of some equation subject to stated linear constraints.

## linear programming

a method of mathematical programming used to solve a problem that involves an objective function and multiple limiting factors or constraints long-term variable cost a cost that was traditionally viewed as a fixed cost

## Linear regression

A statistical technique for fitting a straight line to a set of data points.

## Log-linear least-squares method

A statistical technique for fitting a curve to a set of data points. One of the
variables is transformed by taking its logarithm, and then a straight line is fitted to the transformed set of data
points.

## log size model

Abrams’ model to calculate discount rates as a function of the logarithm of the value of the firm.

## London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.

## London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.

## Make-Work Project

A project, Such as digging holes and filling them up again, that has no useful purpose other than to make work.

## Manufactured housing securities (MHSs)

Loans on manufactured homes - that is, factory-built or
prefabricated hoUsing, including mobile homes.

## Market model

This relationship is sometimes called the single-index model. The market model says that the
return on a security depends on the return on the market portfolio and the extent of the security's
responsiveness as measured, by beta. In addition, the return will also depend on conditions that are unique to
the firm. Graphically, the market model can be depicted as a line fitted to a plot of asset returns against
returns on the market portfolio.

## Markowitz model

A model for selecting an optimum investment portfolio,
devised by H. M. Markowitz. It uses a discrete-time, continuous-outcome
approach for modeling investment problems, often called the mean-variance

## Modeling

The process of creating a depiction of reality, Such as a graph, picture, or mathematical
representation.

## Most distant futures contract

When several futures contracts are considered, the contract settling last.
Related: nearby futures contract

## Multiperiod immunization

A portfolio strategy in which a portfolio is created that will be capable of
satisfying more than one predetermined future liability regardless if interest rates change.