Glossary
A
- Abnormal profits
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The extra return over and above that which is compensation for the riskiness of an investment.
- ABS (asset-backed security)
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Cash flows from assets (e.g. bonds, loans) which are bundled together and then sold as an ABS.
- ABS-CDO
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Cash flows from several ABSs are combined, into tranches, which determine the order of payment.
- Accrued interest
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Interest earned on a bond since the last coupon payment.
- Active portfolio management
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Investment strategies which aim to achieve abnormal returns.
- Agency costs
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Costs associated with monitoring contracts.
- American option
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Option which may be exercised at any time up to the expiry date.
- Anomaly
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Returns which cannot be explained by known asset pricing models.
- Arbitrage (arbitrageur)
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An investment strategy that enables a risk-free profit to be made by an arbitrageur. Usually involves trading in two (or more) securities.
- ARCH / GARCH model
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A model of time varying conditional volatility estimated using historical data.
- Asian option
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Option whose payoff depends on the average price of the underlying asset over the life of the option.
- Ask (offer) price
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The price at which a market maker/dealer offers to sell a security.
- Asset
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General term for anything with economic value.
- Asset allocation
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Decision on how to split your wealth into different asset classes, for instance stocks, bonds, and cash.
- Asymmetric information
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Situation where one party has more information than another party.
- At-the-money ...