Often in the cours of human events words become so varied and complex that no single person, whether layman or expert, can hope to understand them all. Such are the times that demand glossaries. Such entries are by definition concise and where appropriate are cross-referenced to the volumes of background material that exist elsewhere.
- ABCP
ABCP is an acronym for Asset-Backed Commercial Paper.
See also: Asset-Backed Commercial Paper
- Algorithmic Trading
Algorithmic Trading is the application of mathematical calculations and electronic trading to efficiently buy or sell orders of a defined quantity. These quantitative models generally divide larger orders into smaller electronic lots, which the market can then quickly trade at current quotes. As time passes and the various bids and offers change, these algorithms automatically generate additional trade instructions based on preset goals and optimized parameters. The calculations continue until the order is either filled or withdrawn.
- Asset-Backed Commercial Paper
Asset-backed Commercial Paper ("ABCP") is corporate debt that is due within a year, and is backed by assets such as real estate, autos and other commercial assets. At the beginning of 2007, the size of the ABCP market exceeded that for traditional corporate CP by a considerable amount.
See also: ABCP
- Best Execution
While there is no specific definition of "best execution" under the U.S. securities laws, market-makers, broker-dealers and investment advisors have a duty to ensure that customers receive best execution on their orders by taking into account all the facts and circumstances surrounding a customer order. Factors a broker-dealer may consider include, among other things, the price of an order, the size of an order, and the trading characteristics of the security involved. The term "best execution" (with different technical implementation details) also has been introduced across the European securities markets through the MiFID legislation which is intended to create a single unified EU market for financial services.
- Brace-Gatarek-Musiela model
The Brace-Gatarek-Musiela pricing model is also known as the Libor Market Model ("LMM"), which uses market-observable LIBOR forward rates. Because this theoretical pricing model uses what can be directly observed rather than items that more traditionally have been used like the instantaneous short-rate or instantaneous forward rates, and the fact that the model is consistent with the market-standard approach for pricing caps, this model is quite popular with market practioners.
See also: LIBOR Market Model
- Business Intelligence
Business intelligence (BI) is a popularized, umbrella term used to describe a broad category of enterprise application programs and technologies for gathering, storing, analyzing, and providing access to accurate and actionable data, calculations and knowledge to help decision makers make better business decisions. BI applications include the activities of decision support, query and reporting, online analytical processing (“OLAP”), knowledge management, enterprise resource planning, statistical analysis, forecasting, and data mining. In short, business intelligence is derived from the process of enhancing data information and transforming that information into actionable knowledge. More information on Business Intelligence can be found on Wikipedia.
- CEP
CEP is an acronym for Complex Event Processing.
See also: Complex Event Processing
- COLT
COLT is an acronym for Computational Learning Theory.
See also: Computational Learning Theory
- Complex Event Processing
Complex Event Processing (“CEP”) is an emerging technology for making, monitoring, measuring, managing and maintaining enterprise information systems including:
<> Business Activity Monitoring (“BAM”)
<> Business Process Management (“BPM”)
<> Enterprise Application Integration (“EAI”)
<> Event-Driven Architectures (“EDA”)
<> Network and business level Security
<> Real time conformance to regulations, rules, policies and procedures.
CEP embodies principles for creating information system applications that enable enterprises to keep pace with the vast amount of date and information flowing through their IT systems. The goal of CEP is to enable the data contained in the events flowing through all of the layers of the enterprise IT infrastructure to be discovered, transformed into information, understood in terms of its impact on high-level enterprise objectives and business processes, and then ideally acted upon in real-time, thereby reducing decision latencies and hopefully improving Economic Value Added (“EVA”). CEP proactively deals with events created by technologies such as RFID or flowing data streams such a financial market price reporting data or communication system log data. CEP employs techniques such as the detection of complex patterns of many events, event streams processing, event correlation and abstraction, event hierarchies, and relationships between events such as causality, membership, and perhaps most importantly timing. CEP can complement and contribute to other emerging technologies such as service oriented architecture (SOA), event driven architecture (EDA) and business process management (BPM).
See also: CEP
- Compliance Risk
Compliance risk is the current and prospective risk to earnings or capital arising from violations of, or nonconformance with, laws, rules, regulations, prescribed practices, internal policies, and procedures, or ethical standards. Compliance risk also arises in situations where the laws or rules governing certain bank products or activities of the Bank’s clients may be ambiguous or untested. This risk exposes the institution to fines, civil money penalties, payment of damages, and the voiding of contracts. Compliance risk can lead to diminished reputation, reduced franchise value, limited business opportunities, reduced expansion potential, and an inability to enforce contracts.
- Computational Learning Theory
Computational Learning Theory (COLT) is a research field devoted to studying the design and analysis of algorithms for making predictions about the future based on past experiences. The emphasis in COLT is on rigorous mathematical analysis. As a field with roots in theoretical computer science, COLT is largely concerned with computational and data efficiency. Much of the work in COLT can be traced to Leslie Valiant's seminal paper on "A theory of the learnable" (1984) as well as E.M. Gold's "Language identification in the limit" (1967). (More information about this mathematical field Computational Learning Theory can be found in this Wikipedia entry.)
See also: COLT
- Constant Maturity Mortgage Rate
The Constant Maturity Mortgage Rate is the bond equivalent yield of a newly originated To Be Announced ("TBA") mortgage-backed security that uses price ratios of nearby actively traded coupons to trade at parity. This also is referred to as the "current coupon yield" or "secondary mortgage market rate".
See also: Current Coupon Yield, Secondary Mortgage Market Rate
- Copula Function
Embrechts, McNeil and Straumann [1999,2000] clarified the essential concepts of dependence and correlation that allowed the introduction to finance of a mathematical concept called the copula function. Technically, a copula is a function that links univariate margins to the full multivariate distribution resulting in a joint distribution function of N standard uniform random variables. This is a powerful concept in the aggregation of individual risks. (More information about this statstical Copula Function can be found on Wikipedia.)
- Credit Derivatives
Credit Derivatives are a special form of derivative in which the two counter-parties exchange cash flow payments based upon the credit performance of third-party reference portfolio of assets. These instruments include credit default swap options, first loss default swaps, single-tranche default swaps, synthetic collateralized debt obligations, and asset swaps.
- Current Coupon Yield
- See also: Constant Maturity Mortgage Rate
- Economic Capital
This term "Economic Capital" is still to be defined precisely and is the subject of much debate. Much more to come on this subject and how it is both measured and allocated to sub-units of the parent organization.
- Economic Value Added
EVA is the acronym for the financial concept "Economic Value Added." For a company, after-tax earnings minus the opportunity cost of capital. As with any other entity, economic value added essentially measures how much more valuable a company has become during a given time period.
See also: EVA
- Enterprise Risk Management
Enterprise Risk Management (ERM) is the discipline of assessing, organizing, controlling, exploiting, financing and monitoring the activities of an organization in order to optimize the effects of risk on value to the organization's stakeholders.
Within Financial Services firms, Enterprise Risk Management particularly expands the processes of identification, quantification, monitoring and mitigation to an organization’s Market, Credit and Operational Risk areas as well as fortuitous losses, strategic, legal, reputation and other lesser prominent risks.
See also: ERM
- ERM
ERM is an acronym for Enterprise Risk Management.
See also: Enterprise Risk Management
- EVA
EVA is an acronym for Economic Value Added.
See also: Economic Value Added
- Expected Policyholder Deficit
Expected Policyholder Deficit is a term that comes from the insurance quantitative world and represents the expected shortfall the Present Value of the Funds Paid out in Claims less the Prsent Value of the sum of (a) the premiums collected, (b) reinvestment income on those funds and (c) investment income on the capital dedicated to supporting that transaction
- Expected Tail Loss
Expected Tail Loss is defined as the weighted average of the losses in a sample exceeding the VaR (Value at Risk). [See paper by Kevin Down in Financial Enginering News.]
- Financial Engineering
Financial engineering is the process of employing mathematical finance and computer modeling skills to make pricing, hedging, trading and portfolio management decisions. Utilizing various derivative securities and other methods, financial engineering aims to precisely control the financial risk that an entity takes on. Methods can be employed to take on unlimited risks under certain events, or completely eliminate other risks by utilizing combinations of derivative and other securities.
- Finite Reinsurance
Finite Reinsurance is an obscure term used both constructively and destructively by the Property and Casualty insurers. It has come to the forefront in the Spring of 2005 with the government investigations of the insurance industry and American International Group in particular.
See also: Non-traditional Insurance
- Globalization
Globalization entails a “reconfiguration of geography, so that social space is no longer wholly mapped in terms of territorial places, territorial distances and territorial borders”. This term also has become a buzzword and much of the discussion about the term is confused and confusing. There appear to be at least five broad definitions of this term including:
- Globalization as in internationalization
- Globalization as liberalization
- Globalization as universalization
- Globalization as westernization or modernization
- Globalization as spread of supraterritoriality
This last broad definition defines ‘globalization’ as “the intensification of worldwide social relations which link distant localities in such a way that local happenings are shaped by events occurring many miles away and vice versa”. (Giddens 1990). David Held et al (1999: 16) define globalization as a “process (or set of processes) which embodies a transformation in the spatial organization of social relations and transactions - assessed in terms of their extensity, intensity, velocity and impact - generating transcontinental or inter-regional flows and networks of activity”.
- Ideal Teachers
Nikos Kazantzakis suggests that ideal teachers are those who use themselves as bridges over which they invite their students to cross, then having facilitated their crossing, joyfully collapse, encouraging them to create bridges of their own.
- Implementation Shortfall
Implementation Shortfall is the formal name for the slippage in investment return as an individual security is purchased or sold. This term represents the difference between the potential proceeds (changing a position by X amount of units at a Y certain decision price) and what is actually realized (after all transaction costs, including commissions, fees and taxes). Transaction Cost Analysis is formal method of evaluating how effective an asset manager minimizes Implementation Shortfall. (More on Implementation Shortfall at Wikipedia.)
- Influenza
Influenza (or as it is commonly known, the flu or the grippe) is a contagious disease caused by an RNA virus of the orthomyxoviridae family. It attacks the respiratory tract in humans (nose, throat, and lungs) characterized by headaches, muscle aches, fever, weakness, and cough. It is caused by one of three strains of influenza virus (A, B, and C).
- Innovation
Innovation is defined generally as: 1: The act of introducing something new. 2: Something newly introduced. 3: a creation (a new device or process) resulting from study and experimentation [syn: invention] 4: the creation of something in the mind [syn: invention, excogitation, conception, design] 5: the act of starting something for the first time.
- Jingle Mail
Jingle Mail is a short-hand phrase that refers to the situation where homeowners have mailed in the keys to their homes because they cannot make the payments and no longer have any equity (or are "upside down") in their homes. This phrase was a prominent feature of the S&L bust and ensuing real-estate debacle in 1990-1991 -- and something market participants no doubt will be hearing lots more about in the 2007-2010 period.
- Language-Integrated Query
Language-Integrated Query ("LINQ") is an enhancement in the C# 3.0 programming language that was introduced by Microsoft to facilitate general-purpose queries against data within the language. The C# language was originally developed by a small team led by two distinguished Microsoft engineers, Anders Hejsberg and Scott Wiltamuth.
- LIBOR Market Model
- See also: Brace-Gatarek-Musiela model
- LINQ
LINQ is an acronym for Language-Integrated Query that was introduce with C# 3.0 by Microsoft Corporation.
- Market Risk
Market risk is a specialty discipline within Enterprise Risk Management focused on possible risk exposures due to changes in the prices of financial assets and liabilities (or associated option values, typically dominated by volatilities, but also including other Greek parameters).
- Markets in Financial Instruments Directive
Markets in Financial Instruments Directive ("MiFID") is a major component of the European Union's Financial Services Action Plan ("FSAP"), which is intended to create a single market in financial services throughout its member states. MiFID replaces and extends the coverage of the current EU Investment Services Directive ("ISD") as well as introducing new and more extensive requirements to which financial firms will have to adapt, in particular in relation to their conduct of business and internal organization.
MiFID comprises two levels of European legislation. ‘Level 1’, the Directive itself, was adopted in April 2004. In several places, however, it makes provision for its requirements to be supplemented by ‘technical implementing measures’, so-called ‘Level 2’ legislation. Formal Commission recommendations for the Level 2 measures were published on February 6th 2006. The European Securities Committee agreed the text in June 2006, and the measures were formally adopted by the European Commission and published in the Official Journal on September 2nd, 2006.
In addition to extensive transaction reporting requirements, most financial firms that fall within the scope of MiFID will also have to comply with the new Capital Requirements Directive ("CRD") which will set requirements for the regulatory capital which a firm must hold. Those firms newly covered by MiFID will be subject to directive based capital requirements for the first time.
See also: MiFID
- MiFID
MiFID is an acronym for the European Union's Markets in Financial Instruments Directive.
See also: Markets in Financial Instruments Directive
- Monte-Carlo
- See also: Monte-Carlo Model, Monte-Carlo Simulation
- Monte-Carlo Model
- See also: Monte-Carlo, Monte-Carlo Simulation
- Monte-Carlo Simulation
Monte Carlo simulation is a very popular method of probabilistic modeling. In such a simulation, the customized quantitative model is repeatedly run with random variations in the input parameters. Through the repeated generation of model results with a large number of random scenarios that represent a valid distribution of possible input values, a probability distribution of possible outcomes is calculated. These probabilistic results are then fed into other quantitative models such as those that calculate price equilibrium and Value-At-Risk.
See also: Monte-Carlo, Monte-Carlo Model
- National Best Bid and Offer
National Best Bid and Offer is a term used in United States Securities and Exchange Commission ("SEC") 'best execution' regulations to ensure that customers receive the best available bid when selling a security and the best available offer when buying a security. At any point in time, this is the best available bid and offer price available across all exchanges, venues and market makers, and is updated continually throughout the trading day. Often, the volume of stock offered at the best bid or at the best offer price is less than the amount a customer desires to transact. Hence, multiple security transactions (possibly involving a shifting NBBO) are included in whether 'best execution' regulations were satisfied for a larger customer order.
See also: NBBO
- NBBO
NBBO is an acronym for National Best Bid and Offer.
See also: National Best Bid and Offer
- Non-traditional Insurance
"Non-traditional Insurance" is a code phrase that has become part of the financial markets lexicon in the Winter of 2004/2005 in conjunction with the regulatory investigations of AIG and other insurance companies. Since much of the abuse in the property/casualty industry occurred in an obscure sector (and non-traditional one at that) called finite risk reinsurance, this term has become a synonym for finite re transactions. However, it also covers insurance contracts that are little more than derivatives wrapped in a contract of insurance and were issued primarily in Carribean Islands and Ireland during the 1995-2004 period.
See also: Finite Reinsurance
- OAS
OAS is an acronym for Option-Adjusted Spread.
See also: Option-Adjusted Spread
- Option-Adjusted Spread
Option-adjusted spread ("OAS") is the spread relative to a risk-free interest rate, usually measured
in basis points (bp), that equates the theoretical present value of a series of uncertain cash flows
of an instrument to its current market price. OAS can be viewed as the compensation an investor
receives for assuming a variety of risks (e.g. liquidity premium, default risk, model risk), net of the
cost of any embedded options.
See also: OAS
- Portfolio Effect
The term "Portfolio Effect" refers to the phenomena of internal modification of the risk/reward characteristics of a portfolio of risk positions.
- Predictive Analytics
Predictive analytics is an advanced area in the practice of data mining that informs and directs decision making by applying a combination of advanced analytics and decision optimization to an organization’s enterprise data, with the objective of improving business processes to meet specific organization goals. More information on Predictive Analytics can be found on Wikipedia.
- Pretexting
Pretexting is the collection information about a person under false pretenses. For example, calling a person, their family members, coworkers or service providers (such as telephone or utility companies), while posing as someone else, in order to find out information such as the persons home address, birth date, or some other personal information. This tactic has been used by police, private or insurance investigators, and more for years. However, more and more identity thieves, and other types of criminals for that matter, are u
