Accrued Interest
MARKET: Fixed Income
Interest that is due from the issue date of a new bond or from the last coupon payment date (existing bond) to the settlement date on an interest-bearing instrument. When the bond is traded in the secondary market, the buyer of the security pays the quoted price plus accrued interest when the bond trades “cum interest”, while the seller of the bond pays accrued interest to the buyer when the bond trades “ex interest”.
ACI
MARKET: General
Association Cambiste Internationale.
“After-the-bell”
Once the NYSE has officially closed with the ringing of the bell on the balcony
Alpha
MARKET: General
A risk-adjusted measure of the so-called active return on an investment. It represents the return in excess of the compensation for the risk borne and is commonly used to assess active managers' performances. Often the return of a benchmark is subtracted to consider relative performance, which yields Jensen's alpha.
The alpha coefficient (αi) is a parameter in the capital asset pricing model (CAPM). It can be shown that, in an efficient market, the expected value of the alpha coefficient equals the return of the risk free asset: E(αi) = rf.
Therefore the alpha coefficient indicates how an investment has performed after accounting for the risk it involved:
αi < rf: the investment has earned too little for its risk (or was too risky for the return)
αi = rf: the investment has earned a return adequate for the risk taken
αi > rf: the investment has a return in excess of the reward for the assumed risk
American-style Option
MARKET: Derivatives
A financial option that may be exercised at any time during its term (life), from inception (trade date) to the maturity date.
Amortising Swap
MARKET: Derivatives
An interest rate swap structured so that the notional principal decreases over the life of the swap in accordance with a pre-specified schedule.
Annuity
MARKET: TVM
An investment that makes a series of equal payments over a specified time frame. These payments occur at regular intervals (e.g. monthly, semi-annually or annually) and are of equal value (e.g. R1,000 monthly for twelve months).
Annuity Duennuity
MARKET: TVM
Investments/contracts can be structured so that payments (contributions) are made in advance (beginning of the period) rather than in arrears (end of the period) as in the case of an ordinary annuity. This series of cash flows is known as an annuity due.
Arbitrage
MARKET: General
The act of taking advantage of temporary price differences between markets, e.g. the spot and forward markets, or the forward FX market and the money markets. Arbitrage is possible when one of the following three conditions is met:
- The same asset/instrument does not trade at the same price in all markets ("the law of one price").
- Two assets with identical cash flows do not trade at the same price.
- An asset with a known market price in the future does not trade today at its future price discounted at the risk-free interest rate.
Arbitrageur
MARKET: General
A person who engages in arbitrage activities is known as an arbitrageur.
Asian (Average Rate) Option
MARKET: Options
An option that, upon exercise, entitles the buyer (holder) to receive/pay the difference between the exercise (strike) price and the average price of the underlying during the life of the contract.
Ask (Price)
MARKET: General
Also called offer price. The price that the seller of goods/instruments/securities is willing to accept when selling those particular goods. The term “ask price” is especially used in stock trading as a contrast to the term “bid price”. The difference between the ask price and the bid price is called the bid-offer spread.
Asset Backed Security (ABS)
An Asset Backed Securities are securities (bonds or notes) issued on the back of a pool of assets. Examples of the assets used are credit card receivables, home loans and car loans. Assets are pooled to combine many small exposures, while reducing risk by diversification. By repackaging the assets the investment becomes attractive to a broader set of investors, which allows them to be funded at a lower cost.
Asset-or-Nothing Binary Option
MARKET: Options
Pays the value of the underlying security if the option ends in-the-money, or nothing if it ends out-the-money.
Asset Swap
MARKET: Derivatives
A transaction where the cash flows of an underlying asset are swapped or exchanged. For example, an investor swapping the fixed rate coupons on a bond for a floating rate cash flow on another asset.
At-the-Money-Forward
MARKET: Options
An option is at-the-money-forward if the strike (exercise) price/rate is equal to the forward price of the underlying security. An at-the-money-forward option has no monetary (intrinsic) value, only a time value.
At-the-Money Option
MARKET: Options
An option (call/put) whose strike price is equal to the current, prevailing market price of the instrument in the underlying market.
At-the-Money-Spot
MARKET: Options
An option is at-the-money if the strike (exercise) price/rate is the same as the current market price of the underlying security on which the option is written.
