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Extrapolative statistical models |
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Definition of Extrapolative statistical modelsExtrapolative statistical modelsmodels that apply a formula to historical data and project results for a
Related Terms:Arbitrage-free option-pricing modelsYield curve option-pricing models. Deterministic modelsLiability-matching models that assume that the liability payments and the asset cash Stochastic modelsLiability-matching models that assume that the liability payments and the asset cash flows Yield curve option-pricing modelsmodels that can incorporate different volatility assumptions along the 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 percentage of sales modelsPlanning model in which sales forecasts are the driving variables and most other variables are 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-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, 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 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 Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and Compound optionoption on an option. 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. 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 European optionoption that may be exercised only at the expiration date. Related: american option. 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. Foreign currency optionAn option that conveys the right to buy or sell a specified amount of foreign 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 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 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. 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. 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 Lookback optionAn option that allows the buyer to choose as the option strike price any price of the Liquid yield option note (LYON)Zero-coupon, callable, putable, convertible bond invented by Merrill Lynch & Co. 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 OptionGives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a 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. Option-adjusted spread (OAS)1) The spread over an issuer's spot rate curve, developed as a measure of 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 Quality optionAlso called the swap option, the seller's choice of deliverables in Treasury Bond and Treasury Regulatory pricing riskRisk that arises when regulators restrict the premium rates that insurance companies Risk arbitrageSpeculation on perceived mispriced securities, usually in connection with merger and Risk controlled arbitrageA self-funding, self-hedged series of transactions that generally utilize mortgage Riskless arbitrageThe simultaneous purchase and sale of the same asset to yield a profit. Riskless or risk-free assetAn asset whose future return is known today with certainty. The risk free asset is Risk-free assetAn asset whose future return is known today with certainty. Risk-free rateThe rate earned on a riskless asset. Split-fee optionAn option on an option. The buyer generally executes the split fee with first an initial fee, Stock index optionAn option in which the underlying is a common stock index. Stock optionAn option in which the underlying is the common stock of a corporation. Structured arbitrage transactionA self-funding, self-hedged series of transactions that usually utilize Tax free acquisitionA merger or consolidation in which 1) the acquirer's tax basis in each asset whose Tax deferral optionThe feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is Tax-timing optionThe option to sell an asset and claim a loss for tax purposes or not to sell the asset and Time value of an optionThe portion of an option's premium that is based on the amount of time remaining Timing optionFor a Treasury Bond or note futures contract, the seller's choice of when in the delivery month to deliver. Triangular arbitrageStriking offsetting deals among three markets simultaneously to obtain an arbitrage profit. Two-state option pricing modelAn option pricing model in which the underlying asset can take on only two UnderpricingIssue of securities below their market value. Virtual currency optionA new option contract introduced by the PHLX in 1994 that is settled in US$ rather Wild card optionThe right of the seller of a Treasury Bond futures contract to give notice of intent to deliver Yield curve option-pricing modelsModels that can incorporate different volatility assumptions along the Cost-plus pricingA method of pricing in which a mark-up is added to the total product/service cost. Target rate of return pricingA method of pricing that estimates the desired return on investment to be achieved from the free cash flowGenerally speaking, this term refers to cash flow from Call OptionA contract that gives the holder the right to buy an asset for a
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