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Deterministic models |
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Definition of Deterministic modelsDeterministic modelsLiability-matching models that assume that the liability payments and the asset cash
Related Terms:Stochastic modelsLiability-matching models that assume that the liability payments and the asset cash flows Arbitrage-free option-pricing modelsYield curve option-pricing models. Extrapolative statistical modelsmodels that apply a formula to historical data and project results for a percentage of sales modelsPlanning model in which sales forecasts are the driving variables and most other variables are Yield curve option-pricing modelsmodels that can incorporate different volatility assumptions along the Abandonment optionThe option of terminating an investment earlier than originally planned. Administrative pricing rulesIRS rules used to allocate income on export sales to a foreign sales corporation. ![]() American optionAn option that may be exercised at any time up to and including the expiration date. American optionAn option that can be exercised any time until its American-style optionAn option contract that can be exercised at any time between the date of purchase and ArbitrageThe simultaneous buying and selling of a security at two different prices in two different markets, ArbitrageThe purchase of securities on one market for immediate resale on ArbitrageTransactions designed to make a sure profit from inconsistent prices. Arbitrage Pricing Theory (APT)An alternative model to the capital asset pricing model developed by ArbitrageursPeople who search for and exploit arbitrage opportunities. Asian optionoption based on the average price of the asset during the life of the option. ![]() Asset pricing modelA model for determining the required rate of return on an asset. Asset pricing modelA model, such as the Capital Asset pricing Model (CAPM), that determines the required Bargain-purchase-price optionGives the lessee the option to purchase the asset at a price below fair market Barrier optionsContracts with trigger points that, when crossed, automatically generate buying or selling of Basket optionsPackages that involve the exchange of more than two currencies against a base currency at Binomial option pricing modelAn option pricing model in which the underlying asset can take on only two Black-Scholes option-pricing modelA model for pricing call options based on arbitrage arguments that uses cafeteria plan a “menu” of fringe benefit options that includecash or nontaxable benefits Call an optionTo exercise a call option. Call optionAn option contract that gives its holder the right (but not the obligation) to purchase a specified Call OptionA contract that gives the holder the right to buy an asset for a ![]() call optionRight to buy an asset at a specified exercise price on or before the exercise date. Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and Capital Asset Pricing Model (CAPM)A model for estimating equilibrium rates of return and values of capital asset pricing model (CAPM)Theory of the relationship between risk and return which states that the expected risk Compound optionoption on an option. Cost-plus pricingA method of pricing in which a mark-up is added to the total product/service cost. Covered interest arbitrageA portfolio manager invests dollars in an instrument denominated in a foreign Covered or hedge option strategiesStrategies that involve a position in an option as well as a position in the Currency arbitrageTaking advantage of divergences in exchange rates in different money markets by Currency optionAn option to buy or sell a foreign currency. Dealer optionsOver-the-counter options, such as those offered by government and mortgage-backed Delivery optionsThe options available to the seller of an interest rate futures contract, including the quality Doubling optionA sinking fund provision that may allow repurchase of twice the required number of bonds Down-and-in optionBarrier option that comes into existence if asset price hits a barrier. Down-and-out optionBarrier option that expires if asset price hits a barrier. dual pricing arrangementa transfer pricing system that allows Elasticity of an optionPercentage change in the value of an option given a 1% change in the value of the Embedded optionAn option that is part of the structure of a bond that provides either the bondholder or Equity optionsSecurities that give the holder the right to buy or sell a specified number of shares of stock, at Escalating Price OptionA nonqualified stock option that uses a sliding scale for European optionoption that may be exercised only at the expiration date. Related: american option. European optionAn option that can be exercised only on its expiration date. European-style optionAn option contract that can only be exercised on the expiration date. Exercising the optionThe act buying or selling the underlying asset via the option contract. Exit OptionsA variety of options available to an investor to recover their invested capital and the return on their investment. Foreign currency optionAn option that conveys the right to buy or sell a specified amount of foreign free cash flowGenerally speaking, this term refers to cash flow from Free Cash FlowThe funds available for distribution to the capital providers of the Free cash flowsCash not required for operations or for reinvestment. Often defined as earnings before Free floatAn exchange rate system characterized by the absence of government intervention. Also known as Free on boardImplies that distributive services like transport and handling performed on goods up to the Free-on-Board (FOB) DestinationA shipping arrangement agreed to between buyer and Free-on-Board (FOB) Shipping PointA shipping arrangement agreed to between buyer and Free reservesExcess reserves minus member bank borrowings at the Fed. Free riderA follower who avoids the cost and expense of finding the best course of action and by simply Free TradeThe absence of any government restrictions, such as tariffs or quotas, on imports or exports. Futures optionAn option on a futures contract. Related: options on physicals. Garmen-Kohlhagen option pricing modelA widely used model for pricing foreign currency options. Greenshoe optionoption that allows the underwriter for a new issue to buy and resell additional shares. Heavenly Parachute Stock OptionA nonqualified stock option that allows a deceased option holder’s estate up to three years in which to exercise his or her Incentive Stock OptionAn option to purchase company stock that is not taxable Index and Option Market (IOM)A division of the CME established in 1982 for trading stock index Index arbitrageAn investment/trading strategy that exploits divergences between actual and theoretical Index optionA call or put option based on a stock market index. Interest OptionOne of several investment accounts in which your premiums may be invested within your life insurance policy. Intrinsic value of an optionThe amount by which an option is in-the-money. An option which is not in-themoney Irrational call optionThe implied call imbedded in the MBS. Identified as irrational because the call is Liquid yield option note (LYON)Zero-coupon, callable, putable, convertible bond invented by Merrill Liquid yield option note (LYON)Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co. Lookback optionAn option that allows the buyer to choose as the option strike price any price of the Margin requirement (Options)The amount of cash an uncovered (naked) option writer is required to Multi-option financing facilityA syndicated confirmed credit line with attached options. Naked option strategiesAn unhedged strategy making exclusive use of one of the following: Long call Nonqualified Stock OptionA stock option not given any favorable tax treatment North American Free Trade Agreement (NAFTA)an agreement among Canada, Mexico, and the United States establishing the North American free Trade Zone, with a resulting reduction in trade barriers OptionGives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a OptionSee call option and put option OptionA right to buy or sell specific securities or commodities at a stated OptionRight to buy or sell a specified property at a specified amount at some time in the future. Option-adjusted spread (OAS)1) The spread over an issuer's spot rate curve, developed as a measure of Option elasticityThe percentage increase in an option's value given a 1% change in the value of the Option not to deliverIn the mortgage pipeline, an additional hedge placed in tandem with the forward or Option premiumThe option price. Option priceAlso called the option premium, the price paid by the buyer of the options contract for the right Option sellerAlso called the option writer , the party who grants a right to trade a security at a given price in Option writeroption seller. Options contractA contract that, in exchange for the option price, gives the option buyer the right, but not Options contract multipleA constant, set at $100, which when multiplied by the cash index value gives the Options on physicalsInterest rate options written on fixed-income securities, as opposed to those written on Out-of-the-money optionA call option is out-of-the-money if the strike price is greater than the market price Path dependent optionAn option whose value depends on the sequence of prices of the underlying asset Postponement optionThe option of postponing a project without eliminating the possibility of undertaking it. Pricing efficiencyAlso called external efficiency, a market characteristic where prices at all times fully Put an optionTo exercise a put option. Put optionThis security gives investors the right to sell (or put) fixed number of shares at a fixed price within Put OptionA contract that gives the holder the right to sell an asset for a put optionRight to sell an asset at a specified exercise price on or before the exercise date. Related to : financial, finance, business, accounting, payroll, inventory, investment, money, inventory control, stock trading, financial advisor, tax advisor, credit. |