|Value-at-Risk model (VAR)|
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Definition of Value-at-Risk model (VAR)
Value-at-Risk model (VAR)
Procedure for estimating the probability of portfolio losses exceeding some
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.
Same as PV, but usually includes a subtraction for an initial cash outlay.
the value in today’s dollars of cash flows that occur in different time periods.
model for calculating DLOM for minority interests r the discount rate
The net present value analysis of an asset if financed solely by equity
Yield curve option-pricing models.
A model for determining the required rate of return on an asset.
A model, such as the Capital Asset Pricing model (CAPM), that determines the required
The risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk.
The uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for
An option pricing model in which the underlying asset can take on only two
A model for pricing call options based on arbitrage arguments that uses
With respect to convertible bonds, the value the security would have if it were not convertible
A company's book value is its total assets minus intangible assets and liabilities, such as debt. A
Book value per share
The ratio of stockholder equity to the average number of common shares. Book value
The risk that the cash flow of an issuer will be impaired because of adverse economic
The combination of cash flow uncertainty and reinvestment risk introduced by a call provision.
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
An amount the insurance company will pay if the policyholder ends a whole life
The risk that a foreign debtor will be unable to pay its debts because of business events,
Related: Unsystematic risk
The risk that a project will not be brought into operation successfully.
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
Also called parity value, the value of a convertible security if it is converted immediately.
The risk that the other party to an agreement will default. In an options contract, the risk
Country financial risk
The ability of the national economy to generate enough foreign exchange to meet
Country risk General
Level of political and economic uncertainty in a country affecting the value of loans or
A statistical measure of the degree to which random variables move together.
The risk that an issuer of debt securities or a borrower may default on his obligations, or that the
Refers to the volatility of returns on international investments caused by events associated
Related: Exchange rate risk
Currency risk sharing
An agreement by the parties to a transaction to share the currency risk associated with
Also referred to as credit risk (as gauged by commercial rating companies), the risk that an
Liability-matching models that assume that the liability payments and the asset cash
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
Related: unsystematic risk.
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.
In project financing, the risk that the project's output will not be salable at a price that will
A value determined within the context of a model.
Equilibrium market price of risk
The slope of the capital market line (CML). Since the CML represents the
The risk that the ability of an issuer to make interest and principal payments will change because
Exchange rate risk
Also called currency risk, the risk of an investment's value changing because of currency
The variability of a firm's value that results from unexpected exchange rate changes or the
The amount of advantage over a current market transaction provided by an in-the-money
A variable whose value is determined outside the model in which it is used. Also called
The weighted average of a probability distribution.
Expected value of perfect information
The expected value if the future uncertain outcomes could be known
Extraordinary positive value
A positive net present value.
Extrapolative statistical models
models that apply a formula to historical data and project results for a
See: Par value.
A way of decomposing the factors that influence a security's rate of return into common and
A type of mortgage pipeline risk that is generally created when the terms of the loan to be
The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
Firm's net value of debt
Total firm value minus total firm debt.
See:diversifiable risk or unsystematic risk.
Flat price risk
Taking a position either long or short that does not involve spreading.
Force majeure risk
The risk that there will be an interruption of operations for a prolonged period after a
Foreign exchange risk
The risk that a long or short position in a foreign currency might have to be closed out
Related: interest rate risk
The amount of cash at a specified date in the future that is equivalent in value to a specified
Garmen-Kohlhagen option pricing model
A widely used model for pricing foreign currency options.
risk that arises when an issuer has policies concentrated within certain geographic areas,
The risk of loss in foreign exchange trading that one party will deliver foreign exchange but the counterparty financial institution will fail to deliver its end of the contract. It is also referred to as settlement risk.
Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words,
A model of stock returns using a market index such as the S&P 500 to represent common or
Also called purchasing-power risk, the risk that changes in the real return the investor will
The risk that a firm will be unable to satisfy its debts. Also known as bankruptcy risk.
Interest rate risk
The risk that a security's value changes due to a change in interest rates. For example, a
Intrinsic value of an option
The amount by which an option is in-the-money. An option which is not in-themoney
Intrinsic value of a firm
The present value of a firm's expected future net cash flows discounted by the
Net amount that could be realized by selling the assets of a firm after paying the debt.
The risk that arises from the difficulty of selling an asset. It can be thought of as the difference
The amount a policyholder may borrow against a whole life insurance policy at the interest rate
This relationship is sometimes called the single-index model. The market model says that the
Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The
risk that cannot be diversified away. Related: systematic risk
1) The price at which a security is trading and could presumably be purchased or sold.
Market value ratios
Ratios that relate the market price of the firm's common stock to selected financial
Market value-weighted index
An index of a group of securities computed by calculating a weighted average
Related: par value.
Evaluation of risky prospects based on the expected value and variance of possible outcomes.
The selection of portfolios based on the means and variances of their returns. The
Mean-variance efficient portfolio
Related: Markowitz efficient portfolio
Graph of the lowest possible portfolio variance that is attainable for a given
The portfolio of risky assets with lowest variance.
The process of creating a depiction of reality, such as a graph, picture, or mathematical
The risk associated with taking applications from prospective mortgage borrowers
Net adjusted present value
The adjusted present value minus the initial cost of an investment.
Net asset value (NAV)
The value of a fund's investments. For a mutual fund, the net asset value per share
Net book value
The current book value of an asset or liability; that is, its original book value net of any
Net present value (NPV)
The present value of the expected future cash flows minus the cost.
Net present value of growth opportunities
A model valuing a firm in which net present value of new
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