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Financial Glossary

J

January Effect A recurring trend in the stock market during the month of January (mostly the first half of the month) wherein stock prices tend to go up. Jamming Executing a large sell (buy) order in stages by asking for a market on a small size, hitting the bid (offer), ...

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I

Idiosyncratic Risk Unsystematic risk or risk that is uncorrelated to the overall market risk. In other words, the risk that is firm specific and can be diversified through holding a portfolio of stocks. Immediate settlement Delivery and settlement of securities within five business days. Immunization The construction of an asset ...

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H

Haircut The margin or difference between the actual market value of a security and the value assessed by the lending side of a transaction (ie. a repo). Hamster Option A form of Range Option that SBC created. I can describe it no better than Professor S. Trautmann explained it to ...

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G

Gamma The ratio of a change in the option delta to a small change in the price of the asset on which the option is written. Garmen-Kohlhagen option pricing model A widely used model for pricing foreign currency options. Gearing Financial leverage. GEMs (growing-equity mortgages) Mortgages in which annual increases ...

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F

Factor sensitivity The impact on a portfolio of assets of movements in the underlying risk parameter of an individual asset. Factor portfolio A well-diversified portfolio constructed to have a beta of 1.0 on one factor and a beta of zero on any other factors. Factoring Sale of a firm’s accounts ...

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Embedded option

An option implicit in another instrument. The commonest are: call options embedded in bonds, which allow the issuer to redeem the bond early; the options implicit in bonds with sinking funds; the embedded put provisions in some bonds, that allow investors to put the bond back to the issuer at ...

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E

European style options An option contract that can only be exercised upon its expiration date. Compare to American-style options. Excess equity The value of cash or securities held in a margin account that exceeds the federal requirement. (NASD) Exercise price (Strike price) The cost per share at which the holder ...

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Euribor

Euro Interbank Offered Rate. The Brussels-based European Banking Federation’s Euro-denominated counterpart to LIBOR. As of January, 1999, Euribor seems to be winning its battle for acceptance over the British Bankers Association’s Euro LIBOR (q.v.), but London still hopes to win the war for the financial business. On 1/7/99 LIFFE announced ...

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D

Dates convention Treating cash flows as being received on exact dates – date 0, date 1, and so forth – as opposed to the end-of-year convention. Day order An order to buy or sell stock that automatically expires if it can’t be executed on the day it is entered. Day ...

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Derivative instruments

Contracts such as options and futures whose price is derived from the price of the underlying financial asset.

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