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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
Related Terms:Account ValueThe sum of all the interest options in your policy, including interest. Accumulated ValueAn amount of money invested plus the interest earned on that money. Adjusted present value (APV)The net present value analysis of an asset if financed solely by equity approximated net realizable value at split-off allocationa method of allocating joint cost to joint products using a 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 Asset-specific RiskThe amount of total risk that can be eliminated by diversification by Bankruptcy riskThe risk that a firm will be unable to meet its debt obligations. Also referred to as default or insolvency risk. Basis riskThe uncertainty about the basis at the time a hedge may be lifted. Hedging substitutes basis risk for Benefit ValueThe amount of cash payable on a benefit. Beta riskrisk of a firm measured from the standpoint of an investor who holds a highly diversified portfolio. 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 Bond valueWith respect to convertible bonds, the value the security would have if it were not convertible Book valueA company's book value is its total assets minus intangible assets and liabilities, such as debt. A BOOK VALUEAn asset’s cost basis minus accumulated depreciation. Book ValueThe value of an asset as carried on the balance sheet of a Book valueAn asset’s original cost, less any depreciation that has been subsequently incurred. book valueNet worth of the firm’s assets or liabilities according book value and book value per shareGenerally speaking, these terms BOOK VALUE OF COMMON STOCKThe theoretical amount per share that each stockholder would receive if a company’s assets were sold on the balance sheet’s date. Book value equals: Book value per shareThe ratio of stockholder equity to the average number of common shares. Book value Book Value per ShareThe book value of a company divided by the number of shares budget variancethe difference between total actual overhead Business riskThe risk that the cash flow of an issuer will be impaired because of adverse economic business-value-added activityan activity that is necessary for the operation of the business but for which a customer would not want to pay Call riskThe 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 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 CAPITAL IN EXCESS OF PAR VALUEWhat a company collected when it sold stock for more than the par value per share. Carrying valueBook value. Cash-surrender valueAn amount the insurance company will pay if the policyholder ends a whole life Cash Surrender ValueThis is the amount available to the owner of a life insurance policy upon voluntary termination of the policy before it becomes payable by the death of the life insured. This does not apply to term insurance but only to those policies which have reduced paid up values and cash surrender values. A cash surrender in lieu of death benefit usually has tax implications. Cash Surrender ValueBenefit that entitles a policy owner to an amount of money upon cancellation of a policy. Cash value added (CVA)A method of investment appraisal that calculates the ratio of the net present value of an coefficient of variationa measure of risk used when the standard deviations for multiple projects are approximately Commercial riskThe risk that a foreign debtor will be unable to pay its debts because of business events, Company-specific riskRelated: Unsystematic risk Companyspecific RiskSee asset-specific risk Completion riskThe risk that a project will not be brought into operation successfully. 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 Continuous random variableA random value that can take any fractional value within specified ranges, as controllable variancethe budget variance of the two variance approach to analyzing overhead variances Conversion valueAlso called parity value, the value of a convertible security if it is converted immediately. Counterparty riskThe risk that the other party to an agreement will default. In an options contract, the risk Country financial riskThe ability of the national economy to generate enough foreign exchange to meet Country risk GeneralLevel of political and economic uncertainty in a country affecting the value of loans or CovarianceA statistical measure of the degree to which random variables move together. CovarianceA measure of the degree to which returns on two assets move in Credit riskThe risk that an issuer of debt securities or a borrower may default on his obligations, or that the Credit RiskFinancial and moral risk that an obligation will not be paid and a loss will result. Cross-border riskRefers to the volatility of returns on international investments caused by events associated Currency riskRelated: Exchange rate risk Currency risk sharingAn agreement by the parties to a transaction to share the currency risk associated with decision variablean unknown item for which a linear programming Default riskAlso referred to as credit risk (as gauged by commercial rating companies), the risk that an dependent variablean unknown variable that is to be predicted Deterministic modelsLiability-matching models that assume that the liability payments and the asset cash Direct materials mix varianceThe variance between the budgeted and actual mixes of 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 Diversifiable riskRelated: unsystematic risk. 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. Economic riskIn project financing, the risk that the project's output will not be salable at a price that will Economic Value Added (EVA)Operating profit, adjusted to remove distortions caused by certain accounting rules, less a charge economic value added (EVA)a measure of the extent to which income exceeds the dollar cost of capital; calculated economic value added (EVA)Term used by the consulting firm Stern Stewart for profit remaining after deduction of the cost Endogenous variableA value determined within the context of a model. Equilibrium market price of riskThe slope of the capital market line (CML). Since the CML represents the Event riskThe risk that the ability of an issuer to make interest and principal payments will change because Exchange rate riskAlso called currency risk, the risk of an investment's value changing because of currency Exchange riskThe variability of a firm's value that results from unexpected exchange rate changes or the Exercise valueThe amount of advantage over a current market transaction provided by an in-the-money Exit valueThe value that an asset is expected to have at the time it is sold at a predetermined Exogenous variableA variable whose value is determined outside the model in which it is used. Also called Expected valueThe weighted average of a probability distribution. Expected ValueThe value of the possible outcomes of a variable weighted by the Expected value of perfect informationThe expected value if the future uncertain outcomes could be known Extraordinary positive valueA positive net present value. Extrapolative statistical modelsmodels that apply a formula to historical data and project results for a Face valueSee: Par value. Face ValueThe nominal value of a security. Also called the par value. Face valueThe maturity value of a security. Also known as par value, face valuePayment at the maturity of the bond. Also called par value or maturity value. Face ValueThe payoff value of a bond upon maturity. Also called par value. See principal. Face ValueThe nominal value which appears on the face of a document recording an entitlement, generally an amount of money that has to be repaid on the maturity of a debt instrument. Factor modelA way of decomposing the factors that influence a security's rate of return into common and Fair market valueThe price that an asset or service will fetch on the open market. Fair Market ValueThe highest price available, expressed in terms of cash, in an open and unrestricted market between informed, prudent parties acting at arm's length and under no compulsion to transact. Fair ValueThe amount at which an asset could be purchased or sold or a liability incurred or Fallout riskA type of mortgage pipeline risk that is generally created when the terms of the loan to be
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