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Definition of Gamma
The rate of change of delta for a derivative security relative to the
The ratio of a change in the option delta to a small change in the price of the asset on which the
Collectively, "greeks" refer to the financial measures delta, gamma,
the rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value.
The option of terminating an investment earlier than originally planned.
Schedule of depreciation rates allowed for tax purposes.
Any depreciation method that produces larger deductions for depreciation in the
Also called the quick ratio, the ratio of current assets minus inventories, accruals, and prepaid
A merger or consolidation in which an acquirer purchases the selling firm's assets.
A strategy that uses available information and forecasting techniques to seek a
Publicly traded issues that may be collateralized by mortgages and MBSs.
Money after-tax rate of return minus the inflation rate.
The discount rate that reflects only the business risks of a project and abstracts from the
An option that may be exercised at any time up to and including the expiration date.
The second-largest stock exchange in the United States. It trades
An option contract that can be exercised at any time between the date of purchase and
Swap in which the principal or national amount rises (falls) as interest rates
Annual percentage rate (APR)
The periodic rate times the number of periods in a year. For example, a 5%
The signal-to-noise ratio of an analyst's forecasts. The ratio of alpha to residual standard
Arbitrage-free option-pricing models
Yield curve option-pricing models.
Arithmetic average (mean) rate of return
Arithmetic mean return.
Arm's length price
The price at which a willing buyer and a willing unrelated seller would freely agree to
Articles of incorporation
Legal document establishing a corporation and its structure and purpose.
option based on the average price of the asset during the life of the option.
A dealer's price to sell a security; also called the offer price.
Any possession that has value in an exchange.
The ratio of total assets to stockholder equity.
Also called surplus management, the task of managing funds of a financial
Asset activity ratios
ratios that measure how effectively the firm is managing its assets.
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the
A security that is collateralized by loans, leases, receivables, or installment contracts
Methods of financing in which lenders and equity investors look principally to the
Categories of assets, such as stocks, bonds, real estate and foreign securities.
A bond indenture restriction that permits additional borrowing on if the ratio of assets to
Asset for asset swap
Creditors exchange the debt of one defaulting borrower for the debt of another
Asset pricing model
A model for determining the required rate of return on an asset.
A firm's investing in assets that are riskier than those that the debtholders expected.
Asset substitution problem
Arises when the stockholders substitute riskier assets for the firm's existing
An interest rate swap used to alter the cash flow characteristics of an institution's assets so as to
The ratio of net sales to total assets.
Asset pricing model
A model, such as the Capital asset Pricing Model (CAPM), that determines the required
A firm's productive resources.
A common element of a financial plan that describes projected capital spending and the
Auction rate preferred stock (ARPS)
Floating rate preferred stock, the dividend on which is adjusted every
Average (across-day) measures
An estimation of price that uses the average or representative price of a
Average rate of return (ARR)
The ratio of the average cash inflow to the amount invested.
Average tax rate
Taxes as a fraction of income; total taxes divided by total taxable income.
A strategy in which the maturities of the securities included in the portfolio are concentrated
Gives the lessee the option to purchase the asset at a price below fair market
Contracts with trigger points that, when crossed, automatically generate buying or selling of
Base interest rate
Related: Benchmark interest rate.
Basic business strategies
Key strategies a firm intends to pursue in carrying out its business plan.
price expressed in terms of yield to maturity or annual rate of return.
Packages that involve the exchange of more than two currencies against a base currency at
Benchmark interest rate
Also called the base interest rate, it is the minimum interest rate investors will
This is the quoted bid, or the highest price an investor is willing to pay to buy a security. Practically
Bill of exchange
General term for a document demanding payment.
Binomial option pricing model
An option pricing model in which the underlying asset can take on only two
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
Break-even payment rate
The prepayment rate of a MBS coupon that will produce the same CFY as that of
Break-even tax rate
The tax rate at which a party to a prospective transaction is indifferent between entering
Broker loan rate
Related: Call money rate.
A strategy in which a portfolio is constructed so that the maturities of its securities are highly
A passive investment strategy with no active buying and selling of stocks from the
Call an option
To exercise a call option.
Call money rate
Also called the broker loan rate , the interest rate that banks charge brokers to finance
An option contract that gives its holder the right (but not the obligation) to purchase a specified
The price, specified at issuance, at which the issuer of a bond may retire part of the bond at a
The price for which a bond can be repaid before maturity under a call provision.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
Placing one or more limits on the amount of new investment undertaken by a firm, either
Also called financial leverage ratios, these ratios compare debt to total capitalization
Cash flow coverage ratio
The number of times that financial obligations (for interest, principal payments,
Cash flow from operations
A firm's net cash inflow resulting directly from its regular operations
The proportion of a firm's assets held as cash.
Changes in Financial Position
Sources of funds internally provided from operations that alter a company's
Chicago Mercantile Exchange (CME)
A not-for-profit corporation owned by its members. Its primary
Bond price excluding accrued interest.
A strategy in which a put and with the same strike price and expiration are either both
Commodities Exchange Center (CEC)
The location of five New York futures exchanges: Commodity
Common stock ratios
ratios that are designed to measure the relative claims of stockholders to earnings
option on an option.
A single centralized account into which funds collected at regional locations
Movement of cash from different lockbox locations into a single concentration
A firm engaged in two or more unrelated businesses.
A merger involving two or more firms that are in unrelated businesses.
Consumer Price Index (CPI)
The CPI, as it is called, measures the prices of consumer goods and services and is a
Controlled foreign corporation (CFC)
A foreign corporation whose voting stock is more than 50% owned
Conversion parity price
Related:Market conversion price
The contractually specified price per share at which a convertible security can be
The number of shares of common stock that the security holder will receive from
Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the
Convertible preferred stock
Preferred stock that can be converted into common stock at the option of the holder.
A security that can be converted into common stock at the option of the security holder,
The acquisition of one firm by anther firm.
Debt obligations issued by corporations.
A legal document creating a corporation.
One of the three areas of the discipline of finance. It deals with the operation of the firm
Corporate financial management
The application of financial principals within a corporation to create and
Corporate financial planning
financial planning conducted by a firm that encompasses preparation of both
Corporate processing float
The time that elapses between receipt of payment from a customer and the
Corporate tax view
The argument that double (corporate and individual) taxation of equity returns makes
Corporate taxable equivalent
rate of return required on a par bond to produce the same after-tax yield to
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