Glossary
Click on a letter below to display glossary terms beginning with the selected letter.
P&S
Purchase and sale statement. A statement provided by the broker showing change in the
customer's net ledger balance after the offset of a previously established position(s).
Par value
Also called the maturity value or face value, the amount that the issuer agrees to pay
at the maturity date.
Parallel shift in the yield curve
A shift in the yield curve in which the change in the yield on all maturities is the
same number of basis points.
Related:
Non-parallel shift in the yield curve
Parity value
Related:
Conversion value
Participating GIC
A guaranteed investment contract where the policyholder is not guaranteed a crediting
rate, but instead receives a return based on the actual experience of the portfolio
managed by the life company.
Pass-through
Related:
Mortgage pass-through security
Pass-through coupon rate
The interest rate paid on a securitized pool of assets, which is less than the rate paid
on the underlying loans by an amount equal to the servicing and guaranteeing fees.
Passive portfolio strategy
A strategy that involves minimal expectational input, and instead relies on
diversification to match the performance of some market index. A passive strategy assumes
that the marketplace will reflect all available information in the price paid for
securities.
Related:
Active portfolio strategy
Payment-in-kind (PIK) bond
A bond that gives the issuer an option (during an initial period) either to make coupon
payments in cash or to give the bondholder a similar bond.
Related:
Step-up bond
Pension Benefit Guaranty Corporation (PBGC)
A federal agency that insures the vested benefits of pension plan participants
(established -in 1974 by the ERISA legislation).
Pension plan
A fund that is established for the payment of retirement benefits.
Pension sponsors
Organizations that have established a pension plan.
Perfect hedge
A hedge in which the profit and loss are equal.
Performance attribution analysis
The decomposition of a money manager's performance results to explain the reasons why
those results were achieved. This analysis seeks to answer the following questions: (1)
What were the major sources of added value? (2) Was short-term factor timing statistically
significant? (3) Was market timing statistically significant? And (4) was security
selection statistically significant?
Performance evaluation
The evaluation of a manager's performance which involves, first, determining whether the
money manager added value by outperforming the established benchmark (performance
measurement) and, second, determining how the money manager achieved the calculated return
(performance attribution analysis).
Performance measurement
The calculation of the return realized by a money manager over some time interval.
Perpetual warrants
Warrants that have no expiration date.
Pit
A specific area of the trading floor that is designed for the trading of an individual
futures or options contract.
Pit committee
A committee of the exchange that determines the daily settlement price of futures
contracts.
Plan sponsors
The entities that establish pension plans, including private business entities acting
for their employees; state and local entities operating on behalf of their employees;
unions acting on behalf of their members; and -individuals representing themselves.
Plowback rate
Related:
Retention rate
Point
Related:
Minimum price fluctuation
Policy asset allocation
A long-term asset allocation method, in which the investor seeks to assess an
appropriate long-term "normal" asset mix that represents an ideal blend of
controlled risk and enhanced return.
Portfolio
A collection of investments.
Portfolio insurance
A strategy using a leveraged portfolio in the underlying stock to create a synthetic put
option.
Portfolio internal rate of return
The rate of return computed by first determining the cash flows for all the bonds in the
portfolio and then finding the interest rate that will make the present value of the cash
flows equal to the market value of the portfolio.
Portfolio management
Investment management
Portfolio manager
Investment manager
Portfolio turnover rate
For an investment company, an annualized rate found by dividing the lesser of purchases
and sales by the average of portfolio assets.
Position
A market commitment; the number of contracts bought or sold for which no offsetting
transaction has been entered into. The buyer of a commodity is said to have a long
position and the seller of a commodity is said to have a short position.
Related:
Open contracts
Positive carry
Related:
Net financing cost
Positive convexity
A property of option-free bonds whereby the price appreciation for a large change in
interest rates will be greater (in absolute terms) than the price depreciation for the
same change in interest rates.
Posttrade benchmarks
Prices after the decision to trade.
Preferred habitat theory
A biased expectations theory which rejects the assertion that the risk premium must rise
uniformly with maturity. Instead, the extent that the demand for and supply of funds i-,l
a given maturity range do not match will induce some participants to shift to maturities
showing the opposite imbalances. However, such investors will need to be compensated by an
appropriate risk premium whose magnitude will reflect the extent of aversion to either
price or reinvestment risk.
Preferred stock
A class of stock that shares characteristics of both common stock and debt.
Premium
The price of an options contract; also, in futures trading, the amount the futures price
exceeds the price of the spot commodity.
Related:
Inverted market premium payback period
Prepayment speed
Also called speed, the estimated rate at which mortgagers pay off their loans ahead of
schedule, critical in assessing the value of mortgage pass- through securities.
Prepayments
Payments made in excess of scheduled mortgage principal repayments.
Prerefunded bond
Refunded bond.
Pre-trade benchmarks
Prices occurring before or at the decision to trade.
Price compression
The limitation of the price appreciation potential for a callable bond in a declining
interest rate environment, based on the expectation that the bond will be redeemed at the
call price.
Price discovery process
The process of determining the prices of the assets in the marketplace through the
interactions of buyers and sellers.
Price-earnings (P/E) ratio
The current market price of the stock divided by some measure of earnings per share.
Price impact costs
Related:
Market impact costs
Price momentum
Related:
Relative strength
Price risk
The risk that the value of a security (or a portfolio) will decline -in the future.
Price value of a basis Point (PVBP)
Also called the dollar value of an 01, a measure of the change in the price of the bond
if -the required yield changes by one basis point.
Price-volume relationship
A relationship espoused by some technical analysts that signals continuing rises and
falls in security prices based on accompanying changes in volume traded.
Pricing efficiency
Also called external efficiency, a market characteristic where prices at all times fully
reflect all available information that is relevant to the valuation of securities.
Primary market
The principal underlying market for a financial instrument or physical commodity.
Private-label pass-throughs
Related:
Conventional pass-throughs
Probability distribution
Also called a probability function, a function that describes all the values that the
random variable can take and the probability associated with each.
Probability function
Related:
Probability distribution
Profit margin
The ratio of earnings available to stockholders to net sales.
Program trades
Also called basket trades, orders requiring the execution of trades in a large number of
different stocks at as near the same time as possible.
Related:
Block trade
Projected benefit obligation (PBO)
A measure of a pension plan's liability at the calculation date assuming that the plan
is ongoing and will not terminate in the foreseeable future.
Related:
Accumulated benefit obligation (ABO)
Protective put buying strategy
A strategy that involves buying a put option on the underlying security that is held in
a portfolio.
Related:
Covered or hedge option strategies
Provisional call feature
A feature in a convertible issue that allows the issuer to call the issue during the
non-call period if the price of the stock reaches a certain price.
Purchasing-power risk
Related:
Inflation risk
Pure expectations theory
A theory that asserts that the forward rates exclusively represent the expected future
rates.
Related:
Biased expectations theories
Pure index fund
A portfolio that is managed so as to perfectly replicate the performance of the market
portfolio.
Put
An option granting the right to sell the underlying futures contract. Opposite of a
call.
Related:
Call
Put-call parity relationship
The relationship between the price of a put and the price of a call on the same
underlying with the same expiration date, which prevents arbitrage opportunities.
Put swaption
A swaption in which the buyer has the right to enter into a swap as a floating-rate
payer. The writer of the swaption therefore becomes the floating-rate receiver/fixed-rate
payer
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