Value and Capital Management: A Handbook for the Finance and Risk Functions of Financial Institutions

Glossary

Absolute Tracking Error (ATE) –

defined as the difference between the actual investment portfolio returns and the returns on the benchmark portfolio (e.g., $\text{AT}{\mathrm{E}}_t=\left(R_t-R_t^B\right)$average ATE over a long time horizon ($\phi \text{AT}{\mathrm{E}}_t=\frac{1}{T}\sum _{t=1}^T\text{AT}{\mathrm{E}}_t$tracking error as the standard deviation of the absolute tracking error (e.g., $\text{TE}=\sqrt{\frac{1}{T}\sum _{t=1}^T{\left(\text{AT}{\mathrm{E}}_t-\phi \text{AT}{\mathrm{E}}_t\right)}^2}$$\text{TE}\le 0.5\%$

Accumulation Phase –

defined as the period of time when an annuity investor is in the early stages of building up the cash value of the annuity.

Acquisition Expense Ratio –

the ratio of acquisition expenses to the premium earned.

Acquisition Expenses –

the direct and indirect costs of selling, underwriting and initiating a product or service. Acquisition expenses include sales commissions and sales staff expenses (salaries, facilities and equipment costs), advertising and underwriting expenses (including appraisals, contract issuance expenses).

Active Limit Breach –

occurs when a limit is exceeded because of a conscious decision by an individual. Most breaches are passive limit breaches which are not consciously triggered but are triggered by external risk events.

Activity-Based Costing (ABC) –

a costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect costs (overhead) into direct costs compared with conventional costing.

Adjusted R-Squared –

a measure of the goodness of ...