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Factor model |
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Definition of Factor modelFactor modelA way of decomposing the factors that influence a security's rate of return into common and
Related Terms:Single factor modelA model of security returns that acknowledges only one common factor. Two-factor modelBlack's zero-beta version of the capital asset pricing model. One-factor APTA special case of the arbitrage pricing theory that is derived from the one-factor model by ADF (annuity discount factor)the present value of a finite stream of cash flows for every beginning $1 of cash flow. Amortization factorThe pool factor implied by the scheduled amortization assuming no prepayemts. Annuity factorPresent value of $1 paid for each of t periods. annuity factorPresent value of an annuity of $1 per period. Arbitrage-free option-pricing modelsYield curve option-pricing models. 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 Binomial modelA method of pricing options or other equity derivatives in Binomial option pricing modelAn option pricing model in which the underlying asset can take on only two Black-Scholes modelThe first complete mathematical model for pricing Black-Scholes option-pricing modelA model for pricing call options based on arbitrage arguments that uses 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 constant-growth dividend discount modelVersion of the dividend discount model in which dividends grow at a constant rate. Constant-growth modelAlso called the Gordon-Shapiro model, an application of the dividend discount Conversion factorsRules set by the Chicago Board of Trade for determining the invoice price of each critical success factors (CSF)any item (such as quality, customer Deterministic modelsLiability-matching models that assume that the liability payments and the asset cash Discount factorPresent value of $1 received at a stated future date. discount factorPresent value of a $1 future payment. Discounted dividend model (DDM)A formula to estimate the intrinsic value of a firm by figuring the dividend discount modelComputation 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 Dividend growth modelA model wherein dividends are assumed to be at a constant rate in perpetuity. economic components modelAbrams’ model for calculating DLOM based on the interaction of discounts from four economic components. Extrapolative statistical modelsmodels that apply a formula to historical data and project results for a FactorA financial institution that buys a firm's accounts receivables and collects the debt. FactorAn agent who buys and sells goods on behalf of others for a commission. Factor analysisA statistical procedure that seeks to explain a certain phenomenon, such as the return on a Factor of ProductionA resource used to produce a good or service. The main macroeconomic factors of production are capital and labor. Factor portfolioA well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of FactoringSale of a firm's accounts receivable to a financial institution known as a factor. FactoringThe sale of accounts receivable to a third party, with the third party bearing FactoringThe discounting, or sale at a discount, of receivables on a nonrecourse, notification FactoringType of financial service whereby a firm sells or transfers title to its accounts receivable to a factoring company, which then acts as principal, not as agent. Factory overheadAll the costs incurred during the manufacturing process, minus the Garmen-Kohlhagen option pricing modelA widely used model for pricing foreign currency options. Gordon modelpresent value of a perpetuity with growth. Index modelA model of stock returns using a market index such as the S&P 500 to represent common or Interest FactorNumbers found in compound interest and annuity tables. Usually called the FVIF or PVIF. Internet business modela model that involves Limiting factorThe production resource that, as a result of scarce resources, limits the production of goods log size modelAbrams’ model to calculate discount rates as a function of the logarithm of the value of the firm. Market modelThis relationship is sometimes called the single-index model. The market model says that the Markowitz modelA model for selecting an optimum investment portfolio, Maturity factoringfactoring arrangement that provides collection and insurance of accounts receivable. ModelingThe process of creating a depiction of reality, such as a graph, picture, or mathematical Multifactor CAPMA version of the capital asset pricing model derived by Merton that includes extramarket Net benefit to leverage factorA linear approximation of a factor, T*, that enables one to operationalize the Old-line factoringfactoring arrangement that provides collection, insurance, and finance for accounts receivable. percentage of sales modelsPlanning model in which sales forecasts are the driving variables and most other variables are Pie model of capital structureA model of the debt/equity ratio of the firms, graphically depicted in slices of Pool factorThe outstanding principal balance divided by the original principal balance with the result PPF (periodic perpetuity factor)a generalization formula invented by Abrams that is the present value of regular but noncontiguous cash flows that have constant growth to perpetuity. Present value factorfactor used to calculate an estimate of the present value of an amount to be received in QMDM (quantitative marketability discount model)model for calculating DLOM for minority interests r the discount rate Reported factorThe pool factor as reported by the bond buyer for a given amortization period. Scrap factorAn anticipated loss percentage included in the bill of material and Shrinkage factorThe expected loss of some proportion of an item during the Simple linear trend modelAn extrapolative statistical model that asserts that earnings have a base level and Single index modelA model of stock returns that decomposes influences on returns into a systematic factor, Single-index modelRelated: market model Stochastic modelsLiability-matching models that assume that the liability payments and the asset cash flows Two-state option pricing modelAn option pricing model in which the underlying asset can take on only two Value-at-Risk model (VAR)Procedure for estimating the probability of portfolio losses exceeding some Yield curve option-pricing modelsmodels that can incorporate different volatility assumptions along the fractional interest discountthe combined discounts for lack of control and marketability. g the constant growth rate in cash flows or net income used in the ADF, Gordon model, or present value factor. Implied volatilityFor an option, the variance that makes a call option price product costThis is a key factor in the profit model of a business. Product unit-driven expensesExpenses that vary in close proportion to changes
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