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47 Cards in this Set
- Front
- Back
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Contingent Claim |
claim to a payoff that depends on a specific event
- ex: options, some type of swaps |
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NDFs |
non-deliverable forwards
- are cash-settled |
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Initial Margin |
amount that must be deposited in futures account before trade is made |
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Maintenance Margin |
minimum amount of margin that must be maintained in futures account |
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Tenor |
length of swap contract |
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Vanilla interest rate swap |
one party makes fixed- rate payments the other makes floating-rate payments |
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Basis swap |
swapping one floating rate for another |
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Credit derivative |
provides a bondholder w/ protection against a downgrade or default by the borrower |
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Credit default swap (CDS) |
insurance contact against default
- bondholder pays a series of CFs to a credit protection seller & receives PMT if the bond issuer defaults |
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Credit Spread Option |
Call option based on bond's yield relative to benchmark
- if spread increased (credit quality decreased) the bondholder will collect money for option |
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Convenience Yield |
non-monetary benefits from holding an asset (rather than a contract/derivative) |
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Cost of Carry |
Net cost of holding an asset |
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Forward Rate Agreement (FRA) |
derivative that allows someone to lock in a certain interest rate for the future
- long (pay fixed, receive float) expect interest rates to rise - remember different perspective for borrower/lender |
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Synthetic FRA |
created with two libor loans |
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Intrinsic Value |
the amount that an option is in the money |
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Time Value (speculative value) |
Option premium (price of option) - intrinsic value
option premium = intrinsic value + time value
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6 factors that effect option price |
1. underlying asset price 2. exercise price 3. RF Rate (increase call value with increase RF) 4. vol 5. time to expiration 6. costs/ benefits of holding actual asset |
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Fiduciary call |
call with exercise price X + a pure discount riskless bond that pays X at maturity
Payoff = X + (S-X) = S
if OTM payoff = X |
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Protective Put |
buy underlying stock & a put option on a stock
Payoff = (X-S) + S = X - looks like a long call position
if OTM payoff = S
breakeven = s + premium |
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Covered Call |
Owning underlying and selling a call
- payoff looks like a short put
breakeven price = S- call premium total loss = stock loss + premium collected payoff = premium + stock appreciation |
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5 types of alternative investments |
1. hedgefunds 2. P/E 3. Real Estate 4. Commodities 5. Other - ie: tangible collectible assets |
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Backfill bias |
bias introduced by including previous performance data for firms recently added to the benchmark index (survivorship bias they did the best so added to benchmark) |
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Lockup Period |
time after initial investment which withdrawal are not permitted |
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Notice Period |
30-90 days - amount of time a fund has after receiving a redemption request to fulfill the request |
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Fund of funds |
investment company that invests in hedge funds |
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Hedge Fund's 4 strategies |
1. event - driven 2. relative value 3. macro 4. equity |
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Mezzanine Finacing |
- type of debt issues below high-yield usually on a short term time frame - used to grow existing companies - gives lender right to convert to equity |
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Management Buyout (MBO) |
type of LBO where existing management team is involved in purchase |
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Management Buy-ins (MBIs) |
an external MGT team replace existing management team |
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Stages of company life via Venture Firm investments |
1. formative stage - angel investing (business plan) - seed stage (product development/ marketing) - early stage 2. later stage 3. mezzanine-stage ($$ for LBO)
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Private investment in public equities (PIPEs) |
what they call P/E shops investing/ helping restructure a public company |
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Committed capital |
amount of capital given to a P/E shop by investors |
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Clawback Provision |
Gives the LP the right to reclaim a portion of GP carried interest. in event that future losses would have GPs carrying to much carried interest |
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Secondary Sale - (P/E exit) |
selling a portfolio company to another private equity firm or group of investors |
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Recapitalization - (P/E Exit) |
restructuring companies debt/equity structure - usually issues debt to fund a dividend distribution to equity holder (the P/E) shop
- step to exiting/ selling firm |
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Appraisal Index |
used to measure the performance of a real estate investment
- based on periodic estimates of property values - smoother than those based on actual sales
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Repeat Sales Index |
based on price changes for properties that have been sold multiple times
- not random so may have selection bias |
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Income approach |
estimates property values by calc. PV of expected CFs, or use Net operating income (NOI)/ cap rate (discount - growth). |
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Cost Approach |
estimates replacement cost of a property |
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Adjusted Funds from Operations (AFFO) |
FFO - recurring capex |
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Roll Yield |
yield due to difference between spot/futures price - prices converge toward spot as contract gets closer to expiration - if market in backwardation + yield - if market in contango - yield
- type of return for commodities futures
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Collateral Yield |
interest on collateral required to enter into a futures contract
- type of return for commodities futures |
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Hurdle Rate |
minimum rate of return
hard hurdle - incentive fees are paid only on returns excess of hurdle soft hurdle - incentive fees are paid on all profit, but only if hurdle is met |
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High water mark |
incentive fee not paid on gains that just offset prior losses - incentive fees are only paid to extent that current value of investors account is above highest value previously recorded - exists so can't' be charged 2x on same gains |
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Alternative Investments Standard Deviation |
Leptokurtic, negatively skewed |
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Value at Risk (VaR) |
measures level of financial risk within a firm. estimate of the size of a potential decline over a time period that could occur. |
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Sortino ratio |
measures risk as downside deviation rather than standard deviation (differentiates harmful vol from general vol) |
