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Monte Carlo simulation |
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Definition of Monte Carlo simulationMonte Carlo simulationAn analytical technique for solving a problem by performing a large number of trail Monte-Carlo simulationA mathematical modeling process. For a model that
Related Terms:SimulationThe use of a mathematical model to imitate a situation many times in order to estimate the simulation analysisEstimation of the probabilities of different possible outcomes, e.g., from an investment project. economic components modelAbramsâ€™ model for calculating DLOM based on the interaction of discounts from four economic components. Gordon modelpresent value of a perpetuity with growth. log size modelAbramsâ€™ model to calculate discount rates as a function of the logarithm of the value of the firm. markupthe period after an announcement of a takeover bid in which stock prices typically rise until a merger or acquisition is made (or until it falls through). QMDM (quantitative marketability discount model)model for calculating DLOM for minority interests r the discount rate runupthe period before a formal announcement of a takeover bid in which one or more bidders are either preparing to make an announcement or speculating that someone else will. Acquisition of assetsA merger or consolidation in which an acquirer purchases the selling firm's assets. Agency problemConflicts of interest among stockholders, bondholders, and managers. Arbitrage-free option-pricing modelsYield curve option-pricing models. AssetAny possession that has value in an exchange. Asset/equity ratioThe ratio of total assets to stockholder equity. Asset/liability managementAlso called surplus management, the task of managing funds of a financial Asset activity ratiosRatios that measure how effectively the firm is managing its assets. Asset allocation decisionThe decision regarding how an institution's funds should be distributed among the Asset-backed securityA security that is collateralized by loans, leases, receivables, or installment contracts Asset-based financingMethods of financing in which lenders and equity investors look principally to the Asset classesCategories of assets, such as stocks, bonds, real estate and foreign securities. Asset-coverage testA bond indenture restriction that permits additional borrowing on if the ratio of assets to Asset for asset swapCreditors exchange the debt of one defaulting borrower for the debt of another Asset pricing modelA model for determining the required rate of return on an asset. Asset substitutionA firm's investing in assets that are riskier than those that the debtholders expected. Asset substitution problemArises when the stockholders substitute riskier assets for the firm's existing Asset swapAn interest rate swap used to alter the cash flow characteristics of an institution's assets so as to Asset turnoverThe ratio of net sales to total assets. Asset pricing modelA model, such as the Capital Asset Pricing model (CAPM), that determines the required AssetsA firm's productive resources. Assets requirementsA common element of a financial plan that describes projected capital spending and the Automated Clearing House (ACH)A collection of 32 regional electronic interbank networks used to Back-up1) When bond yields and prices fall, the market is said to back-up. Bank for International Settlements (BIS)An international bank headquartered in Basel, Switzerland, which BankruptcyState of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from Bankruptcy cost viewThe argument that expected indirect and direct bankruptcy costs offset the other Bankruptcy riskThe risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk. Bankruptcy viewThe argument that expected bankruptcy costs preclude firms from being financed entirely Bargain-purchase-price optionGives the lessee the option to purchase the asset at a price below fair market Base probability of lossThe probability of not achieving a portfolio expected return. 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 Block houseBrokerage firms that help to find potential buyers or sellers of large block trades. Book runnerThe managing underwriter for a new issue. The book Runner maintains the book of securities sold. Bottom-up equity management styleA management style that de-emphasizes the significance of economic Builder buydown loanA mortgage loan on newly developed property that the builder subsidizes during the Buy limit orderA conditional trading order that indicates a security may be purchased only at the designated BuyoutPurchase of a controlling interest (or percent of shares) of a company's stock. A leveraged buy-out is Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and Capitalization methodA Method of constructing a replicating portfolio in which the manager purchases a Cash settlement contractsFutures contracts, such as stock index futures, that settle for cash, not involving Clearing House Automated Payments System (CHAPS)A computerized clearing system for sterling funds Clearing House Interbank Payments System (CHIPS)An international wire transfer system for high-value Clearing house / ClearinghouseAn adjunct to a futures exchange through which transactions executed its floor are settled by a Closing purchaseA transaction in which the purchaser's intention is to reduce or eliminate a short position in Collective wisdomThe combination of all of the individual opinions about a stock's or security's value. Commission houseA firm which buys and sells future contracts for customer accounts. Related: futures Constant-growth modelAlso called the Gordon-Shapiro model, an application of the dividend discount Continuous random variableA random value that can take any fractional value within specified ranges, as Corporate processing floatThe time that elapses between receipt of payment from a customer and the CouponThe periodic interest payment made to the bondholders during the life of the bond. Coupon equivalent yieldTrue interest cost expressed on the basis of a 365-day year. Coupon paymentsA bond's interest payments. Coupon rateIn bonds, notes or other fixed income securities, the stated percentage rate of interest, usually Cross-border riskRefers to the volatility of returns on international investments caused by events associated Cumulative probability distributionA function that shows the probability that the random variable will Current assetsValue of cash, accounts receivable, inventories, marketable securities and other assets that Current couponA bond selling at or close to par, that is, a bond with a coupon close to the yields currently Current rate methodUnder This currency translation Method, all foreign currency balance-sheet and income Current-coupon issuesRelated: Benchmark issues Customary payout ratiosA range of payout ratios that is typical based on an analysis of comparable firms. Day orderAn order to buy or sell stock that automatically expires if it can't be executed on the day it is entered. Deterministic modelsLiability-matching models that assume that the liability payments and the asset cash Diffusion processA conception of the way a stock's price changes that assumes that the price takes on all Direct estimate methodA Method of cash budgeting based on detailed estimates of cash receipts and cash Direct stock-purchase programsThe purchase by investors of securities directly from the issuer. Discounted dividend model (DDM)A formula to estimate the intrinsic value of a firm by figuring the Discrete random variableA random variable that can take only a certain specified set of discrete possible DistributionsPayments from fund or corporate cash flow. May include dividends from earnings, capital 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. Dividend payout ratioPercentage of earnings paid out as dividends. Dow Jones industrial averageThis is the best known U.S.index of stocks. It contains 30 stocks that trade on Dupont system of financial controlHighlights the fact that return on assets (ROA) can be expressed in terms Dynamic asset allocationAn asset allocation strategy in which the asset mix is mechanistically shifted in Economic order quantity (EOQ)The order quantity that minimizes total inventory costs. Evening upBuying or selling to offset an existing market position. Exchange of assetsAcquisition of another company by purchase of its assets in exchange for cash or stock. Extrapolative statistical modelsmodels that apply a formula to historical data and project results for a Factor modelA way of decomposing the factors that influence a security's rate of return into common and Feasible set of portfoliosThe collection of all feasible portfolios. Feasible target payout ratiosPayout ratios that are consistent with the availability of excess funds to make Field warehouseWarehouse rented by a warehouse company on another firm's premises. Fill or kill orderA trading order that is canceled unless executed within a designated time period. Financial assetsClaims on real assets. Fixed assetLong-lived property owned by a firm that is used by a firm in the production of its income. Fixed asset turnover ratioThe ratio of sales to fixed assets. Floating supplyThe amount of securities believed to be available for immediate purchase, that is, in the Flow-through methodThe practice of reporting to shareholders using straight-line depreciation and Frequency distributionThe organization of data to show how often certain values or ranges of values occur. Full coupon bondA bond with a coupon equal to the going market rate, thereby, the bond is selling at par. Full-payout leaseSee: financial lease. Garmen-Kohlhagen option pricing modelA widely used model for pricing foreign currency options. Give upThe loss in yield that occurs when a block of bonds is swapped for another block of lower-coupon
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