An investment strategy that uses derivatives to hedge an investor's exposure to interest rate fluctuations. The investor purchases an interest rate ceiling for a premium, which is offset by selling an interest rate floor. This strategy protects the investor by capping the maximum interest rate paid at the collar's ceiling, but sacrifices the profitability of interest rate drops. |||An interest rate collar can be an effective way of hedging interest rate risk associated with holding bonds. Since a bond's price falls when interest rates go up, the interest rate cap can guarantee a maximum decline in the bond's value. While interest rate floor does limit the potential appreciation of a bond given a decrease in rates, it provides upfront cash to help pay for the cost of the ceiling. Let's say an investor enters a collar by purchasing a ceiling with a rate of 10% and sells a floor at 8%. Whenever the interest rate is above 10%, the investor will receive a payment from whoever sold the ceiling. If the interest rate drops to 7%, which is under the floor, the investor must now make a payment to the party that bought the floor.
A provision contained in an public offering underwriting agreement that gives the underwriter the right to sell the issuer shares at a later date. The reverse greenshoe option is used to support the price of a share in the event that after the IPO the demand for the stock falls. The underwriter would purchase shares for the depressed price in the market, and sell them to the issuer at a higher price by exercising the option. This activity of buying a large amount of shares in the open market is intended to stabilize the price of the stock. Taobiz explains Reverse Greenshoe Option A reverse greenshoe option differs from a regular greenshoe option as they are put and call options respectively. A reverse greenshoe option is essentially a put option written by the issuer or primary shareholder(s) that allows the underwriter to sell a given percentage of shares issued at a higher price should the market price of the stock fall. In contrast, a regular greenshoe option is essentially a call option written by the issuer or primary shareholder(s) that allows the underwriter to buy a given percentage of shares issued at a lower price to cover a short position taken during the underwriting. Both methods have the same effect of market price stabilization, however it is believed that the reverse greenshoe option is more practical.
An interest rate derivative in which the holder has the right to receive an interest payment based on a variable interest rate, and then subsequently pays an interest payment based on a fixed interest rate. If the option is exercised, the investor who sells the interest rate call option will make a net payment to the option holder. |||Interest rate call options can be used by an investor wishing to hedge a position in a loan in which interest is paid based on a floating interest rate. By purchasing the interest rate call option, an investor is able to forecast the cash flow that will be paid when the interest payment is due.Interest rate call options can be used in either a periodic or balloon payment situation.
An ownership unit in a royalty trust. A royalty unit gives the unit holder a stake in the income generated by the holdings of the trust. A royalty trust takes ownership stakes in operating companies or in their cash flows. The royalty trust owns the income or cash flow that the company generates and passes this income on to the royalty unit holders of that trust. Royalty units are seen as an attractive investment because the income generated by the assets is subject to taxes at the individual level, rather than the double taxation which is seen with dividends on common stock. Taobiz explains Royalty Units For example, let’s say that an investor holds a royalty unit in ABC Oil & Gas Royalty Trust, which owns several oil-producing operations. The investor in the royalty trust will receive income distributions as the underlying oil-producing operations generate income for the trust. If the trust’s assets generate $1 million dollars and there are 100,000 royalty units, each unit will receive $10.
Statistical measures that are historical predictors of investment risk and volatility and major components in modern portfolio theory (MPT). MPT is a standard financial and academic methodology for assessing the performance of a stock or a stock fund compared to its benchmark index. Taobiz explains Risk Measures There are five principal risk measures: Alpha: Measures risk relative to the market or benchmark index Beta: Measures volatility or systemic risk compared to the market or the benchmark index R-Squared: Measures the percentage of an investment's movement that are attributable to movements in its benchmark index Standard Deviation: Measures how much return on an investment is deviating from the expected normal or average returns Sharpe Ratio: An indicator of whether an investment's return is due to smart investing decisions or a result of excess risk. Each risk measure is unique in how it measures risk. When comparing two or more potential investments, an investor should always compare the same risk measures to each different potential investment to get a relative performance.
A yield curve derived by using on-the-run treasuries. Because on-the-run treasuries are limited to specific maturities, the yield of maturities that lies between the on-the-run treasuries must be interpolated, which can be accomplished by a number of methodologies, including bootstrapping and regressions. |||Several different types of fixed-income securities trade at yield spreads to the I curve, making it an important benchmark. For example, certain agency CMOs trade at a spread to the I curve at a spot on the curve equal to their weighted average lives. A CMO's weighted average life will most likely lie somewhere within the on-the-run treasuries, which makes the derivation of the I curve necessary.
Trading arenas, located on the floor of an exchange, in which traders execute orders. Rings are also referred to as pits. Taobiz explains Rings You've probably seen pictures of traders wildly thrashing their arms and yelling orders in the trading rings. Although it may look poorly coordinated, there is actually trading going on.
Corporate debt securities that are designed to allow ease of purchase by individual investors. Internotes reflect the issued debt of the underlying entity which allows retail investors to gain access to bank, corporate or government bonds. Internotes are usually unsecured and have a minimum investment of $1000. |||Internotes carry credit and secondary market risk. They have a starting price, known as par. If $1000 worth of bonds are purchased, at maturity the initial amount is returned with accumulated interest. They are offered for one week starting on Monday and have separate CUSIP numbers based on the specific terms. These terms could include the maturity, call provisions or coupons.
登录
工商服务
危机公关
金融律师
app开发
财税服务
金融牌照
网站建设
知识产权
企业征信
审计评估