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).
A form of Range Option that SBC created. I can describe it no better than Professor S. Trautmann explained it to me: “The German noun Hamster has the same meaning as the English noun hamster: it is the name of a small rodent. But HAMSTER is also a acronym standing for Hoffnung Auf MarktSTabilitaet in Einer Range (literally: Hope on market stability in a given range). It really is a pun as in German the verb ‘hamstern’ has the meaning of ‘to hoard’. HAMSTER options hoard the fixed amount one gets for every day the underlying stays in the prespecified range. What is earned cannot be lost anymore.”
The whole-dollar price of a bid or offer is referred to as the handle (ie. if a security is quoted at 101.10 bid and 101.11 offered, 101 is the handle). Traders are assumed to know the handle.
Hard capital rationing
Capital rationing that under no circumstances can be violated.
A freely convertible currency that is not expected to depreciate in value in the foreseeable future.
Head & shoulders
In technical analysis, a chart formation in which a stock price reaches a peak and declines, rises above its former peak and again declines and rises again but not to the second peak and then again declines. The first and third peaks are shoulders, while the second peak is the formation’s head. Technical analysts generally consider a head and shoulders formation to be a very bearish indication.
A transaction that reduces the risk of an investment.
A fund that may employ a variety of techniques to enhance returns, such as both buying and shorting stocks based on a valuation model.
Hedge ratio (delta)
The ratio of volatility of the portfolio to be hedged and the return of the volatility of the hedging instrument.
A portfolio consisting of the long position in the stock and the short position in the call option, so as to be riskless and produce a return that equals the risk-free interest rate.
Slang for a hedge fund.
A strategy designed to reduce investment risk using call options, put options, short selling, or futures contracts. A hedge can help lock in existing profits. Its purpose is to reduce the volatility of a portfolio, by reducing the risk of loss.
Demands for securities to hedge particular sources of consumption risk, beyond the usual mean-variance diversification motivation.
A contract that obligates a purchaser of a project’s output to make cash payments to the project in all events, even if no product is offered for sale.
An option that the owner could choose to be either a Call or a Put. Another name for a “AC-DC” option (q.v.).
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.
Highly leveraged transaction (HLT)
Bank loan to a highly leveraged firm.
Historical exchange rate
An accounting term that refers to the exchange rate in effect when an asset or liability was acquired.
A dealer who agrees to sell at the bid price quoted by another dealer is said to “hit” that bid.
The date on which holders of record in a firm’s stock ledger are designated as the recipients of either dividends or stock rights. Also called date of record.
A corporation that owns enough voting stock in another firm to control management and operations by influencing or electing its board of directors.
Length of time that an individual holds a security.
Holding period return
The rate of return over a given period.
Sale of some shares of stock to get cash that would be similar to receiving a cash dividend.
Idea that as long as individuals borrow (or lend) on the same terms as the firm, they can duplicate the affects of corporate leverage on their own. Thus, if levered firms are priced too high, rational investors will simply borrow on personal accounts to buy shares in unlevered firms.
Homogenous expectations assumption
An assumption of Markowitz portfolio construction that investors have the same expectations with respect to the inputs that are used to derive efficient portfolios: asset returns, variances, and covariances.
An analysis of returns using total return to assess performance over some investment horizon.
Total return over a given horizon.
Merger between two companies producing similar goods or services.
The process of dividing each expense item of a given year by the same expense item in the base year. This allows for the exploration of changes in the relative importance of expense items over time and the behavior of expense items as sales change.
A merger involving two or more firms in the same industry that are both at the same stage in the production cycle; that is two or more competitors.
The simultaneous purchase and sale of two options that differ only in their exercise date.
The security to which a warrant is attached.
Money that moves across country borders in response to interest rate differences and that moves away when the interest rate differential disappears.
The unique capabilities and expertise of individuals.
The required return in capital budgeting.
A package containing two or more different kinds of risk management instruments that are usually interactive.
A convertible security whose optioned common stock is trading in a middle range, causing the convertible security to trade with the characteristics of both a fixed-income security and a common stock instrument.