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A maturity measurement indicating the average amount of time that principal and interest will be received. It is calculated by weighting the future cash flows by the time period they are received divided by the original principal. Used in the U.S. mortgage markets to approximate the maturity of the security,…

1). A process used to analyze the sources of excess returns from a portfolio against its benchmark into the active decisions of the investment management process. This process helps to separate investment management skills from performance by luck. 2). The process of identifying the source of excess returns from a…

A situation in which an option’s strike price and the current market price of the underlying asset are the same.

Simply known as ALM. 1) In a portfolio management context, it is the management of assets and/or liabilities in such a way as to match cash flows, durations, or maturities of assets and liabilities. 2) In commercial banking, it is the management of the balance sheet including interest rate, prepayment,…

Any swap written to transform the cash flow characteristics of an asset in order to replicate the cash flows characteristics of another asset. The combination of the original asset together with the swap often constitutes a synthetic instrument.

A fixed income security that is collateralized or securitized by the cash flows from other assets, usually smaller, illiquid assets that are pooled together. Examples of ABS collateral are credit cards, home equity loans, auto loans and student loans. Other names for ABS are Securitization and Structured Finance.

The process of distributing investment funds among various investment avenues such as stocks, bonds, money market instruments, cash equivalents, precious metals, real estate etc. This distribution enables diversification of funds among various sectors and asset classes. It helps in gaining a balance between an investors return objectives and his risk…

Sometimes referred to as the offered price and part of a two way price quote, known as the bid-ask spread. In regard to the bid-ask spread, it is the right side of the quote and is the price at which the seller of the security is offering to sell.

The average return from any investment, calculated by summing up the returns of all the periods and then dividing this sum by the number of periods.

A multi-factor model whose theory states that the excess return on any security or portfolio should be proportional to its systematic risk, as measured by beta.

The simultaneous transacting in two or more markets to exploit a price discrepancy. As generally understood, arbitrage involves little risk and little investment.

A series of fixed payments made at equal intervals in time.