|Monte Carlo simulation|
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Definition of Monte Carlo simulation
Monte Carlo simulation
An analytical technique for solving a problem by performing a large number of trail
A mathematical modeling process. For a model that
The use of a mathematical model to imitate a situation many times in order to estimate the
Estimation of the probabilities of different possible outcomes, e.g., from an investment project.
Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
present value of a perpetuity with growth.
Abrams’ model to calculate discount rates as a function of the logarithm of the value of the firm.
the 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).
model for calculating DLOM for minority interests r the discount rate
the 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.
A merger or consolidation in which an acquirer purchases the selling firm's assets.
Conflicts of interest among stockholders, bondholders, and managers.
Yield curve option-pricing models.
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
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
Automated Clearing House (ACH)
A collection of 32 regional electronic interbank networks used to
1) 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
State of being unable to pay debts. Thus, the ownership of the firm's assets is transferred from
Bankruptcy cost view
The argument that expected indirect and direct bankruptcy costs offset the other
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The argument that expected bankruptcy costs preclude firms from being financed entirely
Gives the lessee the option to purchase the asset at a price below fair market
Base probability of loss
The probability of not achieving a portfolio expected return.
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
Brokerage firms that help to find potential buyers or sellers of large block trades.
The managing underwriter for a new issue. The book Runner maintains the book of securities sold.
Bottom-up equity management style
A management style that de-emphasizes the significance of economic
Builder buydown loan
A mortgage loan on newly developed property that the builder subsidizes during the
Buy limit order
A conditional trading order that indicates a security may be purchased only at the designated
Purchase 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
A Method of constructing a replicating portfolio in which the manager purchases a
Cash settlement contracts
Futures 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 / Clearinghouse
An adjunct to a futures exchange through which transactions executed its floor are settled by a
A transaction in which the purchaser's intention is to reduce or eliminate a short position in
The combination of all of the individual opinions about a stock's or security's value.
A firm which buys and sells future contracts for customer accounts. Related: futures
Also called the Gordon-Shapiro model, an application of the dividend discount
Continuous random variable
A random value that can take any fractional value within specified ranges, as
Corporate processing float
The time that elapses between receipt of payment from a customer and the
The periodic interest payment made to the bondholders during the life of the bond.
Coupon equivalent yield
True interest cost expressed on the basis of a 365-day year.
A bond's interest payments.
In bonds, notes or other fixed income securities, the stated percentage rate of interest, usually
Refers to the volatility of returns on international investments caused by events associated
Cumulative probability distribution
A function that shows the probability that the random variable will
Value of cash, accounts receivable, inventories, marketable securities and other assets that
A bond selling at or close to par, that is, a bond with a coupon close to the yields currently
Current rate method
Under This currency translation Method, all foreign currency balance-sheet and income
Related: Benchmark issues
Customary payout ratios
A range of payout ratios that is typical based on an analysis of comparable firms.
An order to buy or sell stock that automatically expires if it can't be executed on the day it is entered.
Liability-matching models that assume that the liability payments and the asset cash
A conception of the way a stock's price changes that assumes that the price takes on all
Direct estimate method
A Method of cash budgeting based on detailed estimates of cash receipts and cash
Direct stock-purchase programs
The 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 variable
A random variable that can take only a certain specified set of discrete possible
Payments 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 model
A model wherein dividends are assumed to be at a constant rate in perpetuity.
Dividend payout ratio
Percentage of earnings paid out as dividends.
Dow Jones industrial average
This is the best known U.S.index of stocks. It contains 30 stocks that trade on
Dupont system of financial control
Highlights the fact that return on assets (ROA) can be expressed in terms
Dynamic asset allocation
An asset allocation strategy in which the asset mix is mechanistically shifted in
Economic order quantity (EOQ)
The order quantity that minimizes total inventory costs.
Buying or selling to offset an existing market position.
Exchange of assets
Acquisition of another company by purchase of its assets in exchange for cash or stock.
Extrapolative statistical models
models that apply a formula to historical data and project results for a
A way of decomposing the factors that influence a security's rate of return into common and
Feasible set of portfolios
The collection of all feasible portfolios.
Feasible target payout ratios
Payout ratios that are consistent with the availability of excess funds to make
Warehouse rented by a warehouse company on another firm's premises.
Fill or kill order
A trading order that is canceled unless executed within a designated time period.
Claims on real assets.
Long-lived property owned by a firm that is used by a firm in the production of its income.
Fixed asset turnover ratio
The ratio of sales to fixed assets.
The amount of securities believed to be available for immediate purchase, that is, in the
The practice of reporting to shareholders using straight-line depreciation and
The organization of data to show how often certain values or ranges of values occur.
Full coupon bond
A bond with a coupon equal to the going market rate, thereby, the bond is selling at par.
See: financial lease.
Garmen-Kohlhagen option pricing model
A widely used model for pricing foreign currency options.
The loss in yield that occurs when a block of bonds is swapped for another block of lower-coupon
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